financial statements - westpac

Financial statements

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FINANCIAL STATEMENTS 1998

Profit and loss statements

Balance sheets

Statements of cash flows

Statements of changes in shareholders’ equity

Notes to the financial statements

Note 1 Summary of the significant accounting principles and policies

Note 2 Interest

Note 3 Non-interest income

Note 4 Non-interest expenses

Note 5 Abnormal items

Note 6 Income tax

Note 7 Dividends provided for or paid

Note 8 Due from other financial institutions

Note 9 Trading securities

Note 10 Investment securities

Note 11 Loans

Note 12 Provisions for bad and doubtful debts

Note 13 Impaired assets

Note 14 Regulatory deposits

Note 15 Fixed assets

Note 16 Other assets

Note 17 Due to other financial institutions

Note 18 Deposits and public borrowings

Note 19 Other liabilities

Note 20 Debt issues

Note 21 Share capital

Note 22 Maturity analysis

Note 23 Average balance sheet and interest rates

Note 24 Group segment information

Note 25 Credit risk concentrations

Note 26 Auditors’ remuneration

Note 27 Expenditure commitments

Note 28 Superannuation commitments

Note 29 Contingent liabilities and credit commitments

Note 30 Derivative financial instruments

Note 31 Interest rate risk

Note 32 Fair value of financial instruments

Note 33 Group entities

Note 34 Other group investments

Note 35 Retirement benefits

Note 36 Directors

Note 37 Loans to Directors and Director-related parties

Note 38 Directors’ shares and share option transactions

Note 39 Directors’ remuneration

Note 40 Related party disclosures

Note 41 Executives’ remuneration

Note 42 Statements of cash flows

Note 43 Reconciliation with US Generally Accepted Accounting Principles (US GAAP)

Statutory statements

Directors’ declaration

Independent audit report to the shareholders of Westpac Banking Corporation

PROFIT AND LOSS STATEMENTS FOR THE YEARS ENDED 30 SEPTEMBER

Westpac Banking Corporation and its controlled entities Consolidated Parent Entity

1998 1997 1996 1998 1997Note $m $m $m $m $m

Interest income 2 8,896 8,551 8,520 7,436 7,206

Fully tax equivalent gross up 1 128 127 68 128 127

Interest income (including gross up) 9,024 8,678 8,588 7,564 7,333

Interest expense 2 (5,404) (5,198) (5,266) (5,041) (4,796)

Net interest income (including gross up) 3,620 3,480 3,322 2,523 2,537

Non-interest income 3 2,003 1,739 1,472 2,413 2,307

Operating income (including gross up) 5,623 5,219 4,794 4,936 4,844

Charge for bad and doubtful debts 12 (168) (78) (121) (58) (19)

Operating income after charge for bad and doubtful debts (including gross up) 5,455 5,141 4,673 4,878 4,825

Non-interest expenses 4 (3,392) (3,228) (3,049) (3,018) (2,995)

Operating profit before abnormal items (including gross up) 2,063 1,913 1,624 1,860 1,830

Abnormal items 5 (106) – – (106) –

Operating profit before income tax (including gross up) 1,957 1,913 1,624 1,754 1,830

Fully tax equivalent gross up 1 (128) (127) (68) (128) (127)

Operating profit before income tax (excluding gross up) 1,829 1,786 1,556 1,626 1,703

Income tax attributable to operating profit 6 (589) (493) (421) (386) (233)

Income tax credit – abnormal items 5,6 36 – – 36 –

Operating profit after income tax 1,276 1,293 1,135 1,276 1,470

Outside equity interests in operating profit after income tax (4) (2) (3) – –

Operating profit after income tax attributable to shareholders of Westpac Banking Corporation 1,272 1,291 1,132 1,276 1,470

Retained profit at the beginning of the financial year 1,873 1,366 842 1,410 748

Aggregate of amounts transferred (to)/from reserves (51) (53) 45 (58) (77)

Total available for appropriation 3,094 2,604 2,019 2,628 2,141

Dividends provided for or paid 7 (853) (731) (653) (853) (731)

Retained profits at the end of the financial year 2,241 1,873 1,366 1,775 1,410

Earnings (in cents) per ordinary share after deducting preference dividends:

Basic – before abnormals 70.1 70.0 58.9

Basic – after abnormals 66.4 70.0 58.9

Fully diluted – before abnormals 68.0 67.8 57.1

Fully diluted – after abnormals 64.5 67.8 57.1

Weighted average number of fully paid ordinary shares (millions) 1,879.0 1,788.6 1,853.1

The accompanying notes, numbered 1 to 42, form part of these financial statements for purposes of Australian reporting requirements.A summary of material adjustments to operating profit after income tax (net income) that would be required if US GAAP had been applied is disclosed in note 43.

1 The Group has entered into various tax effective financing transactions that derive income that is subject to either a reduced or zero rate of income tax.The impact of this is reflected in lower income tax expense and interest income. In order to provide improved comparability, this income is presented ona fully tax equivalent basis at a tax rate of 36%. Previously the presentation of this income implied an operating loss on the transactions, that is, negativenet interest income and net profit before tax. Prior year comparatives have been restated.

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BALANCE SHEETS AS AT 30 SEPTEMBER


1998 1997 1998 1997Note $m $m $m $m

Assets

Cash and balances with central banks 403 321 385 311

Due from other financial institutions 8 3,290 4,002 3,088 3,577

Trading securities 9 6,826 6,243 6,773 6,139

Investment securities 10 2,168 1,633 1,449 994

Loans 11 91,738 77,874 80,967 68,022

Acceptances of customers 10,325 11,242 10,325 11,257

Regulatory deposits 14 1,196 928 1,159 928

Due from controlled entities – – 5,950 8,070

Investments in controlled entities – – 6,158 5,906

Fixed assets 15 1,599 1,672 1,034 932

Other assets 16 19,774 15,048 18,499 13,728

Total assets 137,319 118,963 135,787 119,864

Liabilities

Due to other financial institutions 17 4,343 4,570 4,271 4,568

Deposits and public borrowings 18 83,164 72,636 77,230 66,077

Bonds, notes and commercial paper 20 10,580 6,273 7,682 4,834

Acceptances 10,325 11,242 10,325 11,257

Due to controlled entities – – 7,841 9,722

Other liabilities 19 17,773 14,141 17,309 13,311

Total liabilities excluding loan capital 126,185 108,862 124,658 109,769

Loan capital

Subordinated bonds, notes and debentures 20 1,778 1,200 1,778 1,200

Subordinated perpetual notes 20 745 695 745 695

Total loan capital 2,523 1,895 2,523 1,895

Total liabilities 128,708 110,757 127,181 111,664

Net assets 8,611 8,206 8,606 8,200

Shareholders’ equity

Share capital 21 1,899 1,861 1,899 1,861

Reserves 4,466 4,466 4,932 4,929

Retained profits 2,241 1,873 1,775 1,410

Shareholders’ equity attributable to shareholders of Westpac Banking Corporation 8,606 8,200 8,606 8,200

Outside equity interests in controlled entities 5 6 – –

Total shareholders’ equity 8,611 8,206 8,606 8,200

The accompanying notes, numbered 1 to 42, form part of these financial statements for purposes of Australian reporting requirements. A summary of material adjustments to operating profit after income tax (net income) that would be required if US GAAP had been applied is disclosed in note 43.


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STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 30 SEPTEMBER


1998 1997 1996 1998 1997Note $m $m $m $m $m

Cash flows from operating activities

Interest received 9,035 8,585 8,505 7,561 7,194

Interest paid (5,161) (5,132) (5,183) (4,793) (4,737)

Dividends received 15 38 16 518 832

Other non-interest income received 747 637 1,653 733 380

Non interest expenses paid (2,772) (2,833) (2,768) (2,656) (2,660)

(Increase)/decrease in trading securities 484 (722) 1,857 (274) (766)

Income taxes paid (360) (568) (198) (92) (408)

Net cash provided by/(used in) operating activities 42 1,988 5 3,882 997 (165)

Cash flows from investing activities

Proceeds from sale of investment securities 928 680 1,105 483 471

Proceeds from matured investment securities 52 1,266 731 45 772

Purchase of investment securities (656) (1,348) (1,566) (285) (885)

Net (increase)/decrease in:

loans (7,033) 547 (6,062) (5,684) (12,853)

due from other financial institutions 960 2,483 (1,338) 789 2,274

regulatory deposits (106) (30) (120) (71) (75)

investments in controlled entities – – – 745 (1,647)

due from controlled entities – – – 2,634 (705)

other assets 1,191 589 (179) 965 (351)

securitisation of loans 2,412 2,886 341 2,412 2,886

Purchase of fixed assets (398) (318) (512) (321) (261)

Proceeds from disposal of fixed assets 273 300 200 58 163

Controlled entities acquired (net of cash held) 42 (174) (346) (1,360) (174) –

Net cash provided by/(used in) investing activities (2,551) 6,709 (8,760) 1,596 (10,211)

Cash flows from financing activities

Redemption of loan capital (94) (479) (450) (94) (449)

Issue of loan capital 350 – – 350 –

Proceeds from issue of shares 89 30 14 89 30

Buyback of shares (1,306) (251) (545) (1,306) (251)

Net increase/(decrease) in:

due to other financial institutions (800) (1,280) (1,553) (859) (1,271)

deposits and public borrowings 1,131 (2,919) 5,996 3,991 7,138

bonds, notes and commercial paper 2,109 (1,103) 2,458 2,042 325

due to controlled entities – – – (5,848) 5,401

other liabilities (126) (113) (339) (178) 105

Payment of dividends (708) (684) (622) (708) (684)

Payment of dividends to outside equity interests (1) (2) (2) – –

Net cash provided by/(used in) financing activities 644 (6,801) 4,957 (2,521) 10,344

Net (decrease)/increase in cash and cash equivalents 81 (87) 79 72 (32)

Effect of exchange rate changes on cash and cash equivalents 1 – (1) 2 –

Cash and cash equivalents at beginning of year 321 408 330 311 343

Cash and cash equivalents at year end 42 403 321 408 385 311

Details of reconciliation of net cash provided by operating activities to operating profit after income tax are provided at note 42The accompanying notes, numbered 1 to 42, form part of these financial statements for purposes of Australian reporting requirements.A summary of material adjustments to operating profit after income tax (net income) that would be required if US GAAP had been applied is disclosed in note 43.

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STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED 30 SEPTEMBER


1998 1997 1996 1998 1997Note $m $m $m $m $m

Share capital

Balance at beginning of year 1,861 1,887 1,906 1,861 1,887

Shares issued:

under the Chief Executive Share Option Agreement 21 – 2 – – 2

under the Dividend Reinvestment Plan 21 9 – – 9 –

under the Senior Officers’ Share Purchase Scheme 19 6 3 19 6

for acquisitions of Bank of Melbourne Limited (1996 Trust Bank New Zealand Limited and Challenge Bank Limited) 142 – 73 142 –

Shares previously paid to $0.10 or $0.01, fully paid up 21 – 1 – – 1

Shares bought back 21 (132) (35) (95) (132) (35)

Balance at year end 1,899 1,861 1,887 1,899 1,861

Reserves

Reserve fund

Balance at beginning of year 663 589 549 663 589

Transfer from retained profits 64 74 40 64 74

Balance at year end 727 663 589 727 663

Share premium reserve

Balance at beginning of year 3,470 3,665 3,779 3,470 3,665

Premium on shares issued 21 1,179 21 336 1,179 21

Premium on shares bought back 21 (1,174) (216) (450) (1,174) (216)


Premises revaluation reserve


Revaluation of premises (33) (21) (32) (12) (11)

Transfer to retained profits of realised revaluation gains on sale of premises (17) (31) (86) (4) (23)

Other adjustments (8) (6) (4) – –


Investment revaluation reserve

Balance at beginning of year – – – 528 711

Revaluation of investments in controlled entities – – – (49) (183)

Balance at year end – – – 479 528

Capital redemption reserve 135 135 135 131 131

Foreign currency translation reserve

Balance at beginning of year (4) (17) (15) (24) (41)

Transfer from/(to) retained profits 4 10 1 (2) 26

Exchange differences on translation net of hedging (15) 3 (3) 1 (9)

Balance at year end (15) (4) (17) (25) (24)

Total reserves 4,466 4,466 4,632 4,932 4,929

Retained profits

Balance at beginning of year 1,873 1,366 842 1,410 748

Aggregate of amounts transferred (to)/from reserves (51) (53) 45 (58) (77)

Operating profit after tax attributable to shareholders 1,272 1,291 1,132 1,276 1,470

Dividends provided for or paid 7 (853) (731) (653) (853) (731)


Total shareholders’ equity attributable to shareholders of Westpac Banking Corporation at year end 8,606 8,200 7,885 8,606 8,200

The accompanying notes, numbered 1 to 42, form part of these financial statements for purposes of Australian reporting requirements.A summary of material adjustments to operating profit after income tax (net income) that would be required if US GAAP had been applied is disclosed in note 43.


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NOTE 1. SUMMARY OF THE SIGNIFICANT ACCOUNTING

PRINCIPLES AND POLICIES

(a) BASES OF ACCOUNTING

i. GeneralThe financial statements are a general purpose financial report.The report complies with Accounting Standards, other mandatoryprofessional reporting requirements, the provisions of the Deed ofSettlement and the Bank of New South Wales Act of 1850 (asamended). These requirements have been applied in a mannerauthorised for a banking corporation under the Banking Act 1959(as amended) and, so far as considered appropriate to WestpacBanking Corporation, in accordance with the requirements of theCorporations Law.

The report is drawn up in accordance with the historical costconvention, except where indicated otherwise. The carrying valueof non-current assets does not exceed their recoverable amount.Except where otherwise indicated, recoverable amount isdetermined as the undiscounted amount expected to be recoveredfrom the net cash flows arising from the assets’ continued useand subsequent disposal.

The accounting policies adopted are consistent with those of theprevious year, unless indicated otherwise. Comparative informationis restated where appropriate to enhance comparability.

The financial statements also include disclosures required by theUnited States Securities and Exchange Commission in respect offoreign registrants.

ii. ConsolidationThe consolidated financial statements comprise the financialstatements of Westpac Banking Corporation (the Parent Entity)and all entities it controlled during the year ended 30 September1998. The Parent Entity and controlled entities are referred tocollectively as the “Group”. The effects of all transactionsbetween entities in the Group are eliminated in full. Controlledentities are listed in note 33.

iii. CurrencyAll amounts are expressed in Australian currency. Assets andliabilities of overseas branches and controlled entities have beentranslated to Australian dollars at the mid-point of the closingrates of exchange at balance date. Income and expenses ofoverseas branches and controlled entities have been translatedat average daily rates of exchange ruling during the year. In thefinancial statements of the Parent Entity, exchange differencesarising on translation of the Parent Entity’s net investment inoverseas branches, after allowing for foreign currency hedges,are reflected in the foreign currency translation reserve.

In the consolidated financial statements, the foreign currencytranslation reserve also reflects exchange differences ontranslation of the Parent Entity’s net investment in overseascontrolled entities after allowing for foreign currency hedges.

Exchange differences relating to foreign currency monetary items(other than those used to hedge the net investment in overseasbranches and controlled entities) are included in the profit andloss statement as part of the operating results. Foreign currencyliabilities are generally matched by assets in the same currency.The total amounts of unmatched foreign currency assets andliabilities and consequent foreign currency exposures are notmaterial.

(b) INCOME RECOGNITIONi. Interest incomeInterest income is brought to account on an accruals basis.Interest, including premiums and discounts on trading andinvestment securities, is brought to account on a yield to maturitybasis. Interest relating to impaired loans is recognised as income

only when received. When a loan is categorised as non-accrual,unpaid interest accrued since the last reporting date is reversedagainst income. Unpaid interest relating to prior reporting periodsis either written off as a bad debt or specific provision is madeas necessary.

ii. Dividends on redeemable preference share financeDividend income is disclosed as part of interest income and isrecorded in the profit and loss statement on an accruals basis.

iii. LeasingFinance leases are accounted for under the finance methodwhereby income is taken to account progressively over the life ofthe lease in proportion to the outstanding investment balance.

iv. Fee incomeFee income is brought to account on an accruals basis. Front endfees, if material, are segregated between cost recovery and riskmargin, with the risk margin being taken to income over theperiod of the loan or other risk. The balance of front end fees isconsidered to represent the recovery of costs and is taken toincome upon receipt.

v. Trading incomeGains and losses realised from the sale of trading securities andunrealised market value adjustments are reflected in the profitand loss statement.

Income or expense on derivative financial instruments used tohedge interest rate exposure is recorded on an accruals basis asan adjustment to the yield of the related interest rate exposuresover the periods covered by the contracts. Both realised andunrealised gains and losses on trading derivative contracts aretaken to the profit and loss statement.

vi. Dividend incomeDividend income is recorded in the profit and loss statement asdeclared.

(c) EXPENSE RECOGNITIONi. Interest expenseInterest expense is brought to account on an accruals basis.Interest, including premiums or discounts incurred on issue ofsecurities is brought to account on a yield to maturity basis.

ii. Bad and doubtful debtsThe annual charge against profits for bad and doubtful debtsreflects new specific provisions, reversals of specific provisionsno longer required and movements in the general provision.

iii. LeasingOperating lease payments are charged to the profit and lossstatement in the periods in which they are incurred, representingthe pattern of benefits derived from the leased assets. Incentivesreceived on entering into operating leases are recognised asliabilities. Lease payments, for such leases, are allocated betweeninterest, rental expense and reduction of the liability on a straightline basis over the term of the lease. Lease commitments aredisclosed in the financial statements prior to the deduction ofincentives (refer note 27).

(d) INCOME TAX

Tax effect accounting procedures under the liability methodhave been adopted whereby income tax expense for the year ismatched with the accounting results after allowing for permanentdifferences. The tax effect of cumulative timing differences, whichoccur where items are included for income tax purposes in aperiod different from that in the financial statements, is shown inthe provision for deferred income tax or future income tax benefit,as applicable, at current taxation rates.

The future income tax benefits arising from tax losses have beenrecognised only where the realisation of such benefits in futureyears are considered vir tually certain (see note 16).

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NOTE 1. SUMMARY OF THE SIGNIFICANT ACCOUNTINGPRINCIPLES AND POLICIES (CONTINUED)

(e) ASSETS

i. Cash and balances with central banksCash and balances with central banks includes cash at branchesand cash at bankers. They are brought to account at the face valueor the gross value of the outstanding balance where appropriate.

ii. Due from other financial institutionsReceivables from other financial institutions includes loans, nostrobalances, certificates of deposit and settlement account balancesdue from other financial institutions. They are brought to accountat the gross value of the outstanding balance.

iii. Trading and investment securitiesTrading securities: are recorded at market value. Unrealisedgains and losses on derivative financial instruments are includedin the balance sheet under “other financial markets assets” and“other financial markets liabilities” respectively, as shown innotes 16 and 19.

Investment securities: are intended to be held to maturity. Theyare recorded at cost, or at cost adjusted for premium or discountamortisation. Gains and losses on the sale of investmentsecurities are calculated using the specific identification method.

Any transfers of securities from the trading securities portfolio tothe investment securities portfolio are effected at the marketvalue of the securities at the date of transfer. Where there is noready market in certain unlisted semi-government securities,market values are assessed by reference to interest yields.

Repurchase and reverse repurchase agreements: where tradingand investment securities sold under agreements to repurchase(repurchase agreements) are, in essence, financing arrangements,they are retained within the trading or investment portfolio andthe obligation to repurchase is included in the balance sheetunder “other liabilities”. Securities purchased under agreementsto resell (reverse repurchase agreements) are included in thebalance sheet under “other assets”.

Trade date accounting: trading and investment securities areaccounted for on a trade date basis. Amounts receivable forsecurities sold but not yet delivered are included in the balancesheet under “other assets” as shown in note 16. Amountspayable for securities purchased but not yet delivered are includedin the balance sheet under “other liabilities” as shown in note 19.

Short sale of securities: short trading positions are included inthe balance sheet under “other liabilities” as shown in note 19.

iv. Loans, advances and other receivablesLoans, advances and other receivables include overdrafts, homeloans, credit card and other personal lending, term loans, leasing,bill financing, redeemable preference share finance and leveragedleases. They are carried at recoverable amount represented bythe gross value of the outstanding balance adjusted for provisionsfor bad and doubtful debts and unearned income.

Provisions for bad and doubtful debtsAll known bad debts are written off against the provisions in theyear in which they are recognised. Bad debts, in respect of whichno specific provisions have been established, are written offagainst the general provision.

Specific provisions: are raised as soon as a loan has beenidentified as doubtful and when the estimated repaymentrealisable from the borrower is likely to fall short of the amountof principal and interest outstanding. Such loans are treated asimpaired assets and are included in note 13.

A general provision: is maintained for losses that can reasonablybe expected to arise, based on historical experience, from theexisting overall loan portfolio over its remaining life but which arenot yet identifiable. In determining the level of general provision,

reference is also made to business conditions, the composition ofthe portfolio and industry best practices.

Impaired assetsThe Group has disclosed, in note 13, components of its loanportfolio that have been classified as impaired assets. Indetermining the impairment classification, the Group has adoptedthe Australian Prudential Regulation Authority’s (APRA) guidelinesfor classifying impaired assets, which consist of the followingbroad categories:

Non-accrual loans: are items where income may no longer beaccrued ahead of its receipt because reasonable doubt exists asto the collectability of principal and interest. This includesexposures where contractual payments are 90 or more consecutivedays in arrears where security is insufficient to ensure paymentand assets acquired through security enforcement.

Restructured loans: are items where the original contractualterms have been formally modified to provide for concessionsof interest or principal for reasons related to the financialdifficulties of the customer.

The Group also discloses interest received and estimatedinterest foregone during the year on the above non-accrual andrestructured loans.

Where repayment of a loan is dependent upon the sale ofproperty held as security, the estimated realisable value of theloan is based on the current market value of the security property,being the amount that would be realisable from a willing buyer toa willing seller, allowing a period of up to 12 months fromcommencement of selling to settlement.

v. AcceptancesThe exposure arising from the acceptance of bills of exchangethat are sold into the market is brought to account as a liability.A contra asset, “acceptances of customers”, is recognised toreflect the Parent Entity’s or Group’s claim against each drawerof the bills.

Bills that have been accepted by the Parent Entity or Group andare held in its own portfolio are included in the balance sheetunder “loans” as shown in note 11.

vi. Regulatory depositsIn several countries in which the Group operates, the law requiresthat regulatory deposits be lodged with the local central bank ata rate of interest generally below that prevailing in the market.The amount of the deposit and the interest rate receivable aredetermined in accordance with the requirements of the localcentral bank.

vii. Investments in controlled entities and other investmentsInvestments in controlled entities are recorded by the ParentEntity at its share of net assets at book value, plus unamortisedintangible assets relating to the investments. Differences betweenbook value of net assets plus unamortised intangible assets andcost of controlled entities are included in the investmentrevaluation reserve.

Other investments, comprising unlisted shares in other companies,as shown in note 16 and listed in note 34, are generally held aslong-term investments and recorded at cost. Gains and losses onsale are measured as the difference between the carrying value asat the date of sale and the net proceeds, and are reflected in theprofit and loss statement. For details on the investment in WestpacLife Insurance Services Limited (“Westpac Life”) refer to note 1(h)vi.

viii. Fixed assetsPremises and sites are carried at cost or valuation. Valuationsare undertaken every three years, supported in the case ofmajor Australian properties and all New Zealand properties,by independent valuers’ advice. The revaluation incrementsare not brought to account, while decrements are recognised


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whenever the recoverable value of any individual property isdetermined to be less than its carrying value. Such property isrevalued down to the recoverable value, with the decrement beingtaken to the premises revaluation reserve. The most recentvaluation of premises and sites was undertaken in July 1998.

Substantially all of the Group’s premises to which the premisesrevaluation reserve relates have been held for many years andare thus outside the scope of Australian capital gains taxlegislation. As such, any future liability for capital gains tax whichmight arise in the event of disposal of any of these premises isnot disclosed as it would be immaterial.

Depreciation of buildings is calculated on a straight line basisat rates appropriate to their estimated useful life. The calculationis based on the most recent revaluation prior to year end, or,in respect of buildings acquired subsequent to that revaluation,on cost.

The cost of improvements to leasehold premises is capitalisedand amortised over the term of the initial lease, but notexceeding 10 years.

Furniture and equipment are shown at cost less depreciationwhich is calculated on a straight line basis at rates appropriateto their estimated useful life, which ranges from 3 to 15 years.

During the current financial year the Group changed its policy onaccounting for the cost of purchased and internally developedcomputer software. From 1 October 1997, internal and externalcosts directly incurred in the purchase or development of computersoftware, including subsequent upgrades and enhancements,are capitalised. Previously, the Group only capitalised the costsassociated with major projects. The accounting policy was changedas a consequence of recent international developments inaccounting for the costs of computer software developed orobtained for internal use. The effect of the change is to increaseoperating profit after tax by $24 million.

The capitalised software is amortised over its expected life, whichis usually 3 years but no greater than 10 years. Costs incurredon computer software maintenance and modifications of existingcomputer software for Year 2000 compatibility are expensedas incurred.

ix. Intangible assetsIntangible assets are amortised on a straight line basis over theperiod in which the benefits are expected to arise, but notexceeding 20 years.

(f) LIABILITIESi. Due to other financial institutionsDue to other financial institutions includes deposits, vostrobalances and settlement account balances due to other financialinstitutions. They are brought to account at the gross value of theoutstanding balance.

ii. Deposits and public borrowingsDeposits and public borrowings include non-interest bearingdeposits repayable at call, certificates of deposit, interest bearingdeposits, debentures and other funds raised publicly by borrowingcorporations. They are brought to account at the gross value ofthe outstanding balance.

iii. Bonds, notes, commercial paper and loan capitalThese are bonds, notes, commercial paper and loan capital thathave been issued by the Group and are recorded at cost oramortised cost. Premiums, discounts and any issue expenses areamortised to the profit and loss statement from the date of issueuntil the maturity of the security.

iv. Employee entitlementsLiabilities for wages and salaries and annual leave are recognisedand are measured as the amount unpaid at year end at currentpay rates in respect of employees’ services up to that date.

Liabilities for long service leave and other deferred employeebenefits are recognised as the present value of expected futurepayments to be made in respect of services provided byemployees up to year end. Consideration is given to expectedfuture wage and salary levels, experience of employee departureand periods of service. Expected future payments are discountedto their net present value using rates on CommonwealthGovernment securities with terms that match as closely aspossible the estimated future cash flows.

A liability is also carried for on-costs, including deferred payrolltax, in respect of provisions for certain employee benefits whichattract such costs.

v. Restructuring provisionsProvision for restructuring costs includes provisions for expensesincurred but not yet paid and future expenses that will arise asa direct consequence of decisions already made. This includesthe cost of staff retrenchments and net outgoings on certainunoccupied leased premises or sub-let premises where projectedrental income falls short of rental expense. The liability forpremises costs is determined on the basis of the present valueof net future cash flows.

(g) SHAREHOLDERS’ EQUITYOrdinary share capital is recognised at the par value of theamount paid up. Any excess between the par value and the issueprice is recorded in the share premium reserve, in accordancewith the Parent Entity’s Deed of Settlement.

The Parent Entity’s Deed of Settlement requires that each yearnot less than 5% of the net profit of the Parent Entity for the yearis transferred to the reserve fund, until the fund is at a levelequal to half of the paid-up capital. The reserve fund may not beused for payments of dividends, but may be used to provide foroccasional losses.

The share premium reserve, to which all premiums on the issueof new shares are credited, and premiums on shares bought backare debited, may be used for the payment of dividends only ifsuch dividends are satisfied by the issue of shares to theshareholders.

The premises revaluation reserve comprises unrealisedrevaluation increments and decrements for premises and sites.The net unrealised gains reflected in this reserve would notnormally be regarded as being available for payment of dividendsuntil such gains are realised.

In accordance with the requirements of the Parent Entity’s Deedof Settlement, in 1995, $131 million was transferred fromretained profits to the capital redemption reserve uponredemption of 131.2 million preference shares. This reserve maynot be used for the payment of dividends.

As mentioned in note 1(a)iii to the financial statements,exchange differences arising on translation of the net investmentin overseas branches and controlled entities are reflected in theforeign currency translation reserve. Any offsetting gains orlosses on hedging of these balances, together with any tax effectare also reflected in this reserve, which may be either a debit orcredit balance. Any credit balance in this reserve would notnormally be regarded as being available for payment of dividendsuntil such gains are realised.

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(h) OTHER ACCOUNTING PRINCIPLES AND POLICIES

i. Superannuation costsActuarially assessed surpluses in the Group’s principal employeesuperannuation schemes are recognised in the balance sheet asnon-current assets, representing a prepayment of contributions tothe schemes (see note 16).

Superannuation costs are recognised over employees’ servicelives so that the annual charge to the profit and loss statementis an approximately level percentage of current and expectedfuture pensionable pay, less the anticipated benefit accruing fromthe existing prepayment of contributions. The amount recorded inthe profit and loss statement is based on the advice of aqualified actuary.

When the actuarial surplus in a principal employee superannuationfund is initially recognised by the Group, the surplus is booked inthe profit and loss statement.

Variations in the value of the surpluses, which result fromperiodic actuarial valuations, are spread over the averageremaining service lives of employees.

ii. Employee share and option ownership schemesCertain employees are entitled to participate in share and optionownership schemes. Details of the schemes are described innote 21. No remuneration expense is recognised in respect ofemployee shares and options issued.

iii. Derivative financial instrumentsTradingForeign exchange and interest rate forwards, futures, options andforward purchases and sales of securities entered into for tradingpurposes are valued at prevailing market rates. Interest rate andcurrency swap agreements are valued at their net present valueafter allowance for future costs and risk exposure.

HedgingForeign exchange and interest rate forwards, futures, swaps andoptions entered into for hedging purposes are accounted for in amanner consistent with the accounting treatment of the hedgeditem. To qualify as a hedge, the swap, forward, futures or optionposition must be designated as a hedge and be effective inreducing the market risk of an existing asset, liability, firmcommitment, or anticipated transaction where there is a highprobability of the transaction occurring and the extent, term andnature of the exposure is capable of being estimated.Effectiveness of the hedge is evaluated on an initial and on-goingbasis by comparing the correlation of the change in market or fairvalue of the hedge with the changes in value of the hedged item.

If an interest rate hedge contract is terminated early, anyresulting gain or loss is deferred and amortised over the periodscorresponding to the hedged item. Where the hedged item ceasesto exist, the corresponding derivative hedge contract is settled orclosed out and any resulting unrecognised gains and losses aretaken to the profit and loss statement.

iv. Loan securitisation

The Group, through its loan securitisation program, packages andsells loans (principally mortgage loans) as securities to investors.In such transactions the Group receives fees for various servicesprovided to the program on an arms-length basis, includingservicing fees, management fees and trustee fees. These feesare recognised over the period in which the relevant costs areborne. The Group also provides arms-length interest rate swapsand loan facilities to the program in accordance with the APRAPrudential Guidelines. In addition, the Group is entitled to residualincome from the program, comprising mortgage loan interest

(net of swap payments) less interest due to investors and otherexpenses of the securitisation program.

The timing and amount of the swap cashflows and the residualincome receipts cannot be reliably measured because of thesignificant uncertainties inherent in estimating future movementsin the repayment rates on the underlying mortgage loans and themortgage loan interest margins. Consequently, the swap and theresidual income receivable are not recognised as assets and nogain is recognised on the sale of the loans. The swapincome/expense and residual income are therefore beingrecognised when payable/receivable.

v. Funds management and trust activitiesThe Group conducts investment management and other fiduciaryactivities through Westpac Financial Services Group Limited andits controlled entities and through certain other controlled entitiesoverseas. These activities result in the holding or placing ofassets on behalf of individuals, trusts, retirement benefit plansand other institutions. At 30 September 1998, the value of suchassets under discretionary management by the Group wasapproximately $20.2 billion (1997 approximately $16.2 billion).These assets are not the property of the Group and are notincluded in the financial statements.

Where subsidiaries, as trustees, incur liabilities in respect ofthese activities, a right of indemnity exists against the assetsof the applicable trusts. As these assets are sufficient to coverliabilities, and it is therefore not probable that the Groupcompanies will be required to settle them, the liabilities arenot included in the consolidated financial statements.

vi. Life insurance businessThe Group conducts life insurance business through itscontrolled entity Westpac Life. The Group’s interest in the profitsof the life insurance statutory funds have been included in theconsolidated profit and loss statement. The profits have beendetermined in accordance with the “Margin on Services”methodology for the valuation of policy liabilities under ActuarialStandard 1.01 “Valuation of Policy Liabilities” of the LifeInsurance Actuarial Standards Board. These profits are notavailable for distribution until the requirements of the LifeInsurance Act (1995) have been met.

The Group’s interest in the accumulated retained earnings of thelife insurance statutory funds, together with the net assets of theshareholders’ funds of Westpac Life are included within thebalance sheet of the Group in other assets (note 16).

Under the provisions of the Life Insurance Act (1995), the assetsand liabilities of the life insurance statutory funds attributable topolicyholders are not controlled by the Group and therefore arenot consolidated.

vii. Rounding of amountsIn accordance with Australian Securities and InvestmentsCommission (ASIC) Class Order 98/0100, all amounts have beenrounded to the nearest million dollars unless otherwise stated.


93

Consolidated Parent Entity

1998 1997 1996 1998 1997$m $m $m $m $m

NOTE 2. INTEREST

Interest income

Loans 7,921 7,206 7,235 6,336 5,885

Deposits with other financial institutions 282 455 556 271 444

Investment securities 130 118 167 99 85

Trading securities 451 621 395 445 615

Regulatory deposits 13 24 23 13 23

Dividends on redeemable preference share finance 46 84 97 42 44

Controlled entities – – – 193 95

Other 53 43 47 37 15

Total interest income 8,896 8,551 8,520 7,436 7,206

Interest expense

Current and term deposits 3,927 3,672 3,627 3,691 3,548

Deposits from other financial institutions 275 391 588 275 390

Bonds, notes and commercial paper 551 396 340 424 291

Public borrowings by subsidiary borrowing corporations 360 423 464 – –

Loan capital 173 162 169 171 161

Controlled entities – – – 460 273

Other 118 154 78 20 133

Total interest expense 5,404 5,198 5,266 5,041 4,796

NOTE 3. NON-INTEREST INCOME

Lending fees (loan and risk) 508 439 423 489 438

Transaction fees and commissions received 725 594 548 707 594

Other non-risk fee income 341 278 258 203 155

Fees and commissions paid (198) (117) (121) (193) (112)

Trading income:

Foreign exchange income 295 182 175 279 177

Trading securities 34 26 20 34 26

Other financial instruments 81 30 23 81 30

Rental income 12 21 20 4 11

General insurance commissions and premiums earned (net of claims) 44 32 29 19 4

Life insurance margin on services profit (before income tax) 90 67 – – –

Dividends from controlled entities – – – 508 797

Dividends from other entities 15 38 16 10 35

Net profit/(loss) on sale of premises 30 20 15 (3) 4

Net profit on sale of investment securities – 2 6 – 2

Net profit/(loss) on sale of other investments 4 73 – – (30)

Cost of hedging overseas operations (13) (1) 14 2 (3)

Service and management fees 2 9 14 223 153

Other 33 46 32 50 26

Total non-interest income 2,003 1,739 1,472 2,413 2,307

94


1998 1997 1996 1998 1997$m $m $m $m $m

NOTE 4. NON-INTEREST EXPENSES

Salaries and other staff expenses

Salaries and wages 1,463 1,428 1,350 1,221 1,230

Provision for employee entitlements 27 35 39 21 35

Superannuation contributions 24 17 14 21 14

Superannuation prepayment adjustment (57) 16 11 (56) 15

Payroll tax 88 78 81 79 70

Fringe benefits tax 41 49 68 38 46

Restructuring costs – – 63 – –

Other 118 131 168 85 106

Total salaries and other staff expenses 1,704 1,754 1,794 1,409 1,516

Equipment and occupancy expenses

Operating lease rentals 279 222 166 304 255

Depreciation and amortisation:

Premises 14 17 14 5 4

Leasehold improvements 25 10 13 20 10

Furniture and equipment 47 51 60 36 40

Technology 158 140 87 145 131

Equipment repairs and maintenance 62 65 54 60 62

Electricity, water and rates 30 33 36 30 30

Land tax 6 7 7 6 6

Other 20 38 46 – 36

Total equipment and occupancy expenses 641 583 483 606 574

Other expenses

Amortisation of intangible assets (note 16) 106 62 34 71 29

Amortisation of deferred expenditure (note 16) 24 21 10 24 17

Non-lending losses 25 24 7 24 25

Consultancy fees, computer software maintenance and other professional services 318 294 265 269 254

Stationery 91 84 73 81 75

Postage and telecommunication costs 203 185 161 188 170

Insurance 12 12 16 11 11

Advertising 99 74 66 88 67

Transaction taxes 12 7 14 6 1

Training 21 19 20 18 15

Travel 61 57 59 52 48

Other 75 52 47 171 193

Total other expenses 1,047 891 772 1,003 905

Total non-interest expenses 3,392 3,228 3,049 3,018 2,995


95


1998 1997 1996 1998 1997$m $m $m $m $m

NOTE 5. ABNORMAL ITEMS

Abnormal expense item:

Restructuring expenses (106) – – (106) –

Total abnormal expense item (106) – – (106) –

Income tax credit applicable to the above abnormal item:

Restructuring expenses 36 – – 36 –

Total income tax credit applicable to abnormal expense item: 36 – – 36 –

Net effect of abnormal item on operating profit after income tax (70) – – (70) –

This principally relates to the acceleration of a program of major improvements to Westpac’s distribution network in Australia, providing

customers and staff with an enhanced environment in which Westpac’s broad range of financial services can be more effectively delivered.

This progressive approach to improving service delivery will involve the introduction of new sales and service outlets and the refurbishment

and restructure of existing network outlets.

NOTE 6. INCOME TAX

Reconciliation of income tax expense shown in the profit and loss statements with prima facie tax payable on pre-tax operating profit after abnormal items

Operating profit before income tax after abnormals 1,829 1,786 1,556 1,626 1,703

Prima facie tax on operating profit based on the company tax rate of 36% in Australia 658 643 560 585 613

Add/(deduct) tax effect of permanent reconciling differences:

Rebateable and exempt dividends (72) (75) (47) (241) (352)

Tax losses (now)/not tax effected (30) (33) (24) (29) (21)

Non-assessable items:

Unit trust income (16) (8) (2) (16) (6)

Capital profits (2) – (6) – –

Other (39) (20) (15) (24) (10)

Non-deductible items:

Depreciation and amortisation 8 6 11 7 1

Other 69 57 20 53 31

Adjustment for overseas tax rates (14) (47) (10) 2 (21)

Tax under/(over)provision in prior years (12) (5) (59) (7) (6)

Other items 3 (25) (7) 20 4

(105) (150) (139) (235) (380)

Total income tax expense attributable to operating profit after abnormals 553 493 421 350 233

Income tax attributable to operating profit comprises:

Income tax attributable to operating profit before abnormal items 589 493 421 386 233

Income tax attributable to abnormal items (36) – – (36) –

553 493 421 350 233

Income tax – abnormal items:

Prima facie tax on abnormal items at 36% (38) – – (38) –

Add/(deduct) tax effect of permanent reconciling differences:

Adjustment for overseas tax rates 2 – – 2 –

Income tax credit – abnormal items (36) – – (36) –

96


1998 1997 1996 1998 1997$m $m $m $m $m

NOTE 6. INCOME TAX (CONTINUED)

Income tax analysis

Income tax expense attributable to operating profit comprises:

Current income tax

Australia 449 240 304 278 89

Overseas (8) 110 102 (22) 8

441 350 406 256 97

Deferred income tax

Australia 63 108 93 52 103

Overseas 61 37 (19) 49 36

124 145 74 101 139

(Over)/under provision in prior years

Australia (18) (2) (52) (7) (3)

Overseas 6 – (7) – –

(12) (2) (59) (7) (3)

Total Australia 494 346 345 323 189

Total Overseas 59 147 76 27 44

Total income tax expense attributable to operating profit after abnormals 553 493 421 350 233

NOTE 7. DIVIDENDS PROVIDED FOR OR PAID

Converting preference share dividends provided for or paid (fully franked at 36%) 24 39 39 24 39

Interim ordinary dividend paid:1998 21 cents per share; 1997 19 cents per share; 1996 16 cents per share (all fully franked at 36%) 388 338 297 388 338

Underprovision of dividend in prior year 1 23 – 10 23 –

Final ordinary dividend provided for:1998 22 cents per share; 1997 20 cents per share; 1996 17 cents per share (all fully franked at 36%) 418 354 307 418 354

Total ordinary dividends provided for or paid 829 692 614 829 692

Total dividends provided for or paid 853 731 653 853 731

1 Final ordinary dividend paid on shares issued to shareholders of Bank of Melbourne Limited (1996 Challenge Bank Limited) as part consideration for theacquisition of that bank.

Franking account balance

Franking account balance as at 30 September 1998 (146) 15

Franking credits arising from payment of current income tax payable 370 181

Franking credits utilised for payment of final dividend proposed (418) (395)

Estimated franking credits arising from the payment of income tax instalments and receipt of franked dividends 291 237

Estimated franking account balance as at 30 June 1999 (end of franking account year) 97 38

Franking of dividends for the financial year ending 30 September 1999 and subsequent financial years will be met out of franking credits arisingin each of those subsequent franking account years.


97


1998 1997 1998 1997$m $m $m $m

NOTE 8. DUE FROM OTHER FINANCIAL INSTITUTIONS

Australia

Interest earning 478 289 478 289

Non-interest earning 28 621 28 342

Total Australia 506 910 506 631

Overseas

Interest earning 2,318 2,763 2,154 2,629


Total Overseas 2,784 3,092 2,582 2,946

Total due from other financial institutions 3,290 4,002 3,088 3,577

NOTE 9. TRADING SECURITIES

Listed

Australian public securities

Commonwealth securities 782 560 782 560

Semi-government securities 334 708 334 708

Australian equity securities 1,006 1,199 1,006 1,199

Australian debt securities 5 12 5 12

Overseas public securities 7 24 7 24

Overseas debt securities 42 169 – 134

Total listed securities 2,176 2,672 2,134 2,637

Unlisted


Treasury notes 3,082 1,983 3,082 1,983

Semi-government securities 48 – 48 –

Australian debt securities 524 369 524 369

Overseas public securities 925 727 914 714

Overseas debt securities 71 492 71 436

Total unlisted securities 4,650 3,571 4,639 3,502

Total trading securities 6,826 6,243 6,773 6,139

Consolidated Parent Entity1998 1997 1998 1997

Book Market Book Market Book Market Book MarketValue Value Value Value Value Value Value Value

$m $m $m $m $m $m $m $m

NOTE 10. INVESTMENT SECURITIES

Listed


Commonwealth securities 112 117 112 110 112 117 112 110

Overseas public securities 5 5 17 17 5 5 17 17

Overseas debt securities 43 43 109 109 43 43 109 109

Total listed securities 160 165 238 236 160 165 238 236

Unlisted

Australian debt securities 6 6 2 2 – – – –

Overseas public securities 167 173 707 697 69 75 87 87

Overseas debt securities 1,835 1,834 686 685 1,220 1,219 669 668

Total unlisted securities 2,008 2,013 1,395 1,384 1,289 1,294 756 755

Total investment securities 2,168 2,178 1,633 1,620 1,449 1,459 994 991

98

Over Over Within 1 year to 5 years to Over1 year 5 years 10 years 10 years Total

$m $m $m $m $m

NOTE 10. INVESTMENT SECURITIES (CONTINUED)

Maturities of the Group’s investment securities are as follows:

1998 Book Value


Commonwealth securities – – 112 – 112

Australian debt securities – – 6 – 6

Overseas public securities 62 110 – – 172

Overseas debt securities 107 1,443 328 – 1,878

Total book value by maturity 169 1,553 446 – 2,168

Total market value by maturity 169 1,559 450 – 2,178

1997 Book Value


Commonwealth securities – – 112 – 112

Australian debt securities – – – 2 2

Overseas public securities 222 502 – – 724

Overseas debt securities 110 636 49 – 795

Total book value by maturity 332 1,138 161 2 1,633

Total market value by maturity 311 1,148 159 2 1,620

Book Unrealised Unrealised MarketValue Gains Losses Value

$m $m $m $m

The following table provides an analysis of the difference between book value (amortised cost) and market value of the Group’s investment securities at 30 September 1998:

Listed


Commonwealth securities 112 5 – 117

Overseas public securities 5 – – 5

Overseas debt securities 43 – – 43

Total listed securities 160 5 – 165

Unlisted

Australian debt securities 6 – – 6

Overseas public securities 167 6 – 173

Overseas debt securities 1,835 – (1) 1,834

Total unlisted securities 2,008 6 (1) 2,013

Total listed and unlisted securities 2,168 11 (1) 2,178

1998 1997$m $m

Details of sales of investment securities during the year were as follows:

Proceeds from sales 928 680

Gross gains realised on sales – 2


99


1998 1997 1998 1997$m $m $m $m

NOTE 11. LOANS

Loans are classified as Australia or Overseas based on the location of the lending office.

Australia

Overdrafts 2,664 2,534 2,664 2,534

Credit card outstandings 2,952 2,415 1,776 1,451

Overnight and call money market loans 86 80 86 80

Own acceptances discounted 2,498 918 2,327 773

Term loans:

Housing 35,378 26,275 35,378 26,275

Non-housing 19,920 17,790 15,249 13,349

Finance leases 2,216 2,050 535 551

Investments in leveraged lease and equity lease partnerships 306 303 283 274

Redeemable preference share finance 1,175 1,296 1,175 1,253

Other 3,134 2,163 2,190 1,364

Total Australia 70,329 55,824 61,663 47,904

New Zealand

Overdrafts 1,019 998 1,019 998

Credit card outstandings 503 510 451 464

Overnight and call money market loans 388 332 388 332

Own acceptances discounted 29 76 29 60

Term loans:

Housing 10,396 11,115 9,853 10,700

Non-housing 6,084 6,334 5,732 5,802

Finance leases 23 29 – –

Redeemable preference share finance 379 304 – –

Other 110 149 74 103

Total New Zealand 18,931 19,847 17,546 18,459

Other Overseas 4,078 3,791 3,173 3,106

Total Overseas 23,009 23,638 20,719 21,565

Total loans (net of unearned income) 93,338 79,462 82,382 69,469

Provisions for bad and doubtful debts (note 12) (1,600) (1,588) (1,415) (1,447)

Total net loans 91,738 77,874 80,967 68,022

Securitisation of loansAt 30 September 1998 the Group had securitised assets amounting to $7,209 million (1997 $3,534 million) via the Westpac Securitisation Trustprogram (“WST program”) and various private placements. Outstanding securitised assets totalled $5,639 million as at 30 September 1998(1997 $3,227 million) after allowing for amortisation of the initial assets securitised.

The securities issued by the WST program do not represent deposits or other liabilities of the Group or Parent Entity. Neither the Group or ParentEntity in any way stands behind the capital value and/or per formance of the securities or the assets of the WST program except to the limitedextent provided in the transaction documents for the WST program through the provision of arms length services and facilities (refer note 1(h)iv).The Group does not guarantee the payment of interest or the repayment of principal due on the securities. The Group is not obliged to supportany losses that may be suffered by the investors and does not intend to provide such support. The Group has no right to repurchase any of thesecuritised loans and no obligation to do so, other than in certain circumstances where there is a breach of warranty within 120 days of the sale.

100


1998 1997 1996 1998 1997$m $m $m $m $m

NOTE 12. PROVISIONS FOR BAD AND DOUBTFUL DEBTS

General provision

Balance at beginning of year 1,249 1,316 980 1,111 1,087

Exchange rate and other adjustments – (15) 13 (3) 2

Provisions of controlled entities/businesses acquired 60 – 110 60 56

Charge to operating profit 84 145 384 3 87

Recoveries of debts previously written off 89 93 85 64 62

Write-offs (244) (290) (256) (146) (183)


Specific provisions


Exchange rate and other adjustments (11) (1) (26) (15) –

Provisions of controlled entities/businesses acquired 17 – 65 17 10

New specific provisions 225 146 200 179 131

Specific provisions no longer required (141) (213) (463) (124) (199)

Write-offs (67) (124) (195) (67) (65)


Total provisions for bad and doubtful debts 1,600 1,588 1,847 1,415 1,447

Charge to operating profit for bad and doubtful debts comprises:

General provision 84 145 384 3 87

New specific provisions 225 146 200 179 131

Specific provisions no longer required (141) (213) (463) (124) (199)

Total charge to operating profit 168 78 121 58 19

ConsolidatedNon-accrual Assets Restructured Assets Total Impaired Assets

1998 1997 1998 1997 1998 1997$m $m $m $m $m $m

NOTE 13. IMPAIRED ASSETS

Australia

Gross impaired items 457 609 39 38 496 647

Less specific provisions 176 205 9 16 185 221

Net impaired items 281 404 30 22 311 426

Overseas

Gross impaired items 327 174 29 48 356 222



Total Australia and Overseas

Gross impaired items 1 784 783 68 86 852 869



1 Includes off-balance sheet impaired items of $36 million (1997 $36 million).


101

Consolidated

1998 1997$m $m

NOTE 13. IMPAIRED ITEMS (CONTINUED)

Accruing items past due 90 days (with adequate security)

Australia 181 312

Overseas 171 69

Total 352 381

Interest received for the year on the above non-accrual and restructured items 24 52

Interest foregone for the year on the above non-accrual and restructured items is estimated at 64 102


1998 1997 1998 1997$m $m $m $m

NOTE 14. REGULATORY DEPOSITS

Non-callable deposits with the RBA 788 634 788 634

Regulatory deposits with central banks overseas 408 294 371 294

Total regulatory deposits 1,196 928 1,159 928

NOTE 15. FIXED ASSETS

Premises and sites (note 1(e)viii)

At Directors’ valuation 1998 267 – 74 –

At Directors’ valuation 1997 61 241 – 14

At Directors’ valuation 1996 – 40 – –

At Directors’ valuation 1995 422 662 229 299

At cost 140 79 139 68

Accumulated depreciation (38) (34) (21) (15)

852 988 421 366

Leasehold improvements

At cost 175 148 128 106

Accumulated amortisation (89) (69) (61) (44)

86 79 67 62

Furniture, equipment and computer software

At cost 1,469 1,349 1,268 1,169

Accumulated depreciation (808) (744) (722) (665)

661 605 546 504

Total fixed assets 1,599 1,672 1,034 932

In July 1998, a valuation of premises and sites was undertaken, based on their estimated market value, supported by independent valuers’advice. The value was $931m. In accordance with Group policy, only the decrements for each property have been reflected in the premisesrevaluation reserve.

102


1998 1997 1998 1997$m $m $m $m

NOTE 16. OTHER ASSETS

Accrued interest receivable 412 423 371 368

Future income tax benefits 725 831 574 549

Securities purchased under agreements to resell 370 555 370 555

Securities sold not delivered 1,527 1,072 1,527 1,072

Other financial markets assets 13,007 9,370 13,021 9,392

Intangible assets (after accumulated amortisation of $226m, 1997 $120m) (note 42) 1,788 1,029 1,468 666

Deferred expenditure (after accumulated amortisation of $122m, 1997 $98m) 105 101 54 63

Prepayment of superannuation fund contributions 758 701 688 632

Investment in Westpac Life 379 346 – –

Other investments 201 149 44 39

Other 502 471 382 392

Total other assets 19,774 15,048 18,499 13,728

Future income tax benefits comprise:

Provision for bad and doubtful debts 547 582 485 527

Provision for employee entitlements 109 107 100 97

Treasury/financial products 229 176 229 164

Depreciation 23 22 15 20

Tax losses 326 240 106 79

Other timing differences (509) (296) (361) (338)

725 831 574 549

Potential future income tax benefits not brought to account as realisation is not considered vir tually certain:

Related to losses 48 30 42 23

Other 113 96 111 93

161 126 153 116

The potential future income tax benefits will only be obtained if:

(i) the Group or relevant entity derives future assessable income of a nature and amount sufficient to enable the benefits from the deductions forthe losses to be realised;

(ii) the Group or relevant entity continues to comply with the conditions for deductibility imposed by tax legislation; and

(iii) no changes in tax legislation adversely affect the Group or relevant entity in realising the benefits from the deductions for the losses.

NOTE 17. DUE TO OTHER FINANCIAL INSTITUTIONS

Australia

Interest earning 205 212 205 212


Total Australia 970 500 903 500

Overseas

Interest earning 3,148 4,001 3,143 3,999


Total Overseas 3,373 4,070 3,368 4,068

Total due to other financial institutions 4,343 4,570 4,271 4,568


103


1998 1997 1998 1997$m $m $m $m

NOTE 18. DEPOSITS AND PUBLIC BORROWINGS

Deposits

Australia

Non-interest bearing, repayable at call 3,663 3,206 3,663 3,206

Certificates of deposit 3,588 2,086 3,588 2,086

Other interest bearing

At call 25,602 20,758 25,755 20,522

Term 1 18,870 16,017 18,868 16,005

Total Australia 51,723 42,067 51,874 41,819

New Zealand

Non-interest bearing, repayable at call 657 1,101 657 1,101



At call 5,920 5,439 5,920 5,439

Term 7,790 8,383 7,790 8,383

Total New Zealand 16,203 17,217 16,203 17,217

Other Overseas

Non-interest bearing, repayable at call 519 478 434 370



At call 670 586 565 448

Term 6,842 4,947 6,632 4,700

Total Other Overseas 9,553 7,534 9,153 7,041

Total Overseas 25,756 24,751 25,356 24,258

Total deposits 77,479 66,818 77,230 66,077

Public borrowings by subsidiary borrowing corporations

Australia

Secured 2 3,851 4,259 – –

Unsecured 1,479 1,126 – –

Total Australia 5,330 5,385 – –

Overseas

Secured 2 347 396 – –

Unsecured 8 37 – –

Total Overseas 355 433 – –

Total public borrowings by subsidiary borrowing corporations 5,685 5,818 – –

Total deposits and public borrowings 83,164 72,636 77,230 66,077

1 Includes floating rate depositary receipts of USD 500 million (AUD 842 million; 1997 AUD 695 million) and GBP 250 million (AUD 718 million;1997 AUD 560 million) maturing in 2001 and 2002, respectively.

2 Secured borrowings relate principally to the AGC group and are secured by floating charges over the assets of AGC and certain of its controlled entities.

104


1998 1997 1998 1997$m $m $m $m

NOTE 19. OTHER LIABILITIES

Provision for:

proposed dividends 418 366 418 366

income taxes 207 150 146 –

deferred income tax 256 369 230 169

long service leave 161 140 149 129

holiday leave and other staff benefits 131 155 117 140

non-lending losses 27 24 25 20

restructuring expenses (note 1(f)v) 272 211 267 196

subsidiary integration costs 15 3 15 3

Unearned general insurance premiums 54 45 – –

Outstanding general insurance claims 24 17 – –

Accrued interest payable 954 711 837 589

Securities sold under agreements to repurchase 139 214 139 214

Securities short sold 1,071 1,115 1,071 1,115

Securities purchased not delivered 1,119 260 1,119 260

Other financial markets liabilities 11,486 9,276 11,472 9,235

Other 1,439 1,085 1,304 875

Total other liabilities 17,773 14,141 17,309 13,311

Provision for deferred income tax comprises:

Leverage lease transactions 311 316 310 310

Finance lease transactions 110 107 48 49

Treasury/financial products 37 21 35 20

Depreciation 58 43 46 25

Other timing differences (260) (118) (209) (235)

256 369 230 169


1998 1997 1998 1997$m $m $m $m

NOTE 20. DEBT ISSUES

Bonds, notes and commercial paper

Long term debt 1

USD 2,288 – 2,288 –

AUD 364 99 300 –

GBP 761 – 761 –

DEM 352 275 352 275

JPY 850 132 850 132

CHF 558 334 558 334

Other currencies 365 90 365 90

5,538 930 5,474 831

Short term debt 2

USD 4,201 4,411 1,367 3,081

AUD 381 197 381 187

GBP 181 621 181 621

CHF 30 10 30 10

Other currencies 249 104 249 104

5,042 5,343 2,208 4,003

Total 10,580 6,273 7,682 4,834

1 Long term debt issues consist principally of medium term notes.2 Short term debt consists principally of commercial paper issues.The maturity profile for bonds, notes and commercial paper is shown in note 22.


105


1998 1997 1998 1997$m $m $m $m

NOTE 20. DEBT ISSUES (CONTINUED)

Subordinated bonds, notes and debentures

JPY 10 billion dual currency subordinated bonds due 1999 1 124 114 124 114

USD 400 million 9.175% subordinated debentures due 2001 2 673 556 673 556

USD 350 million 7.875% subordinated debentures due 2002 2 589 486 589 486

NZD 50 million subordinated bonds due 2005 3 42 44 42 44

AUD 350 million subordinated bonds due 2008 4 350 – 350 –

Total subordinated bonds, notes and debentures 1,778 1,200 1,778 1,200

1 Swap arrangements (to US currency at a floating interest rate) have been entered into in respect of these bonds.2 Swap arrangements (to US currency at a floating interest rate) have been entered into in respect of these debentures.3 Swap arrangements (to NZ currency at a fixed interest rate of 9.05%) have been entered into in respect of these bonds.4 Swap arrangements (to floating interest rate) have been entered into in respect of AUD 112 million of these bonds. The remainder have a fixed rate of 5.41%.

Premiums and discounts, and fees and commissions paid on each issue have been deferred and are being amortised to income over the life ofthe respective bonds or notes. Net unamortised expenses at 30 September 1998 amounted to $5 million (30 September 1997 $6 million).

Subordinated bonds, notes and debentures with an original maturity of at least seven years constitute tier 2 capital as defined by the APRA forcapital adequacy purposes. The value assigned is based on the remaining years to maturity.

Subordinated perpetual notes

USD 442.3 million (1997 USD 500 million) subordinated perpetual floating rate notes 745 695 745 695

These notes have no final maturity but may, subject to the approval of the APRA and subject to certain other conditions, be redeemed at par atthe option of the Parent Entity. The rights of the noteholders will, in the event of the winding up of the Parent Entity, be subordinated in right ofpayment to the claims of depositors and all other creditors of the Parent Entity including other subordinated bond, debenture and noteholders.

The notes constitute tier 2 capital as defined by the APRA for capital adequacy purposes.

Parent Entity

1998 1997$m $m

NOTE 21. SHARE CAPITAL

Authorised capital 3,100 million ordinary shares of $1 each 3,100 3,100

Issued and paid up capital

1,898,993,864 (1997 1,780,618,312) ordinary shares of $1 each fully paid 1,899 1,781

40,000 (1997 50,000) ordinary shares of $1 each paid to $0.10 – –

107,500 (1997 277,000) ordinary shares of $1 each paid to $0.01 – –

Nil (1997 80,000,000) 6.5% non-cumulative converting preference shares of $1 each fully paid 1 – 80

Total issued and paid up capital 1,899 1,861

1 All converting preference shares were converted into $1 ordinary shares by 30 June 1998.

During the year the following shares were issued:

To shareholders under terms of the Bank of Melbourne merger arrangements:142,000,641 ordinary shares of $1 each fully paid at a premium of $7.23.

To shareholders upon conversion of 80,000,000 converting preference shares:80,000,000 ordinary shares of $1 each fully paid at a premium of $6.50.

To shareholders in terms of the Dividend Reinvestment Plan:9,370,524 ordinary shares of $1 each fully paid at a premium of $8.67.

To senior officers under the Senior Officers’ Share Purchase Scheme upon exercise of options:18,766,000 ordinary shares of $1 each fully paid at an average premium of $3.32.

In addition, 179,500 shares issued in terms of the Senior Officers’ Share Purchase Scheme previously paid to $0.01 or $0.10 were fully paid up at an average premium of $3.47.

During the year 131,941,113 ordinary shares of $1 each were bought back ‘on market’ at an average premium of $8.90.

106

NOTE 21. SHARE CAPITAL (CONTINUED)

Options

The following table relates to options granted to senior officers under the Senior Officers’ Share Purchase Scheme (“SOSPS”) to take up ordinaryshares in the Parent Entity:

Number of options

At Issued Exercised Lapsed AtLatest Date for Exercise 1 October During During During 30 SeptemberExercise of Options Price 1997 the Year the Year the Year 1998

1 July 1998 $3.73 595,000 – 555,000 40,000 –11 October 1998 $4.18 770,000 – 705,000 – 65,0008 November 1998 $4.10 1,000,000 – – – 1,000,0002 February 1999 $4.21 690,000 – 425,000 – 265,00022 February 1999 $4.79 150,000 – 150,000 – –5 April 1999 $4.75 250,000 – 250,000 – –16 May 1999 $4.57 700,000 – – – 700,00016 May 1999 $4.65 200,000 – 200,000 – –27 July 1999 $4.20 150,000 – 150,000 – –19 September 1999 $4.41 50,000 – 50,000 – –22 September 1999 $4.36 150,000 – 150,000 – –10 October 1999 $4.30 50,000 – 50,000 – –31 October 1999 $4.07 250,000 – 250,000 – –19 December 1999 $4.20 555,000 – 530,000 – 25,00020 December 1999 $4.05 185,000 – 185,000 – –24 January 2000 $4.20 16,887,000 – 13,022,000 735,000 3,130,0007 February 2000 $4.35 100,000 – 100,000 – –14 February 2000 $4.37 30,000 – 30,000 – –2 March 2000 $4.50 20,000 – 20,000 – –16 March 2000 $4.63 1,200,000 – 450,000 – 750,0005 June 2000 $5.17 80,000 – 80,000 – –20 June 2000 $5.17 1,635,000 – 840,000 100,000 695,00010 July 2000 $4.94 30,000 – – – 30,00017 July 2000 $4.87 25,000 – – – 25,00028 August 2000 $5.07 425,000 – 25,000 25,000 375,00025 September 2000 $4.95 150,000 – – – 150,0003 October 2000 $5.10 170,000 – – – 170,00023 October 2000 $5.34 180,000 – – 85,000 95,0004 December 2000 $5.48 50,000 – – – 50,00019 December 2000 $5.51 250,000 – – 25,000 225,00021 December 2000 $5.47 100,000 – – – 100,00029 January 2001 $5.51 12,788,000 – 380,000 590,000 11,818,0001 February 2001 $5.94 50,000 – – – 50,00019 February 2001 $5.69 460,000 – – 90,000 370,00015 April 2001 $5.58 630,000 – – 30,000 600,00015 April 2001 $5.95 100,000 – – – 100,00029 April 2001 $6.00 225,000 – – – 225,00024 July 2001 $5.64 370,000 – – – 370,00027 August 2001 $5.80 350,000 – – – 350,00028 January 2002 $7.10 12,324,000 – 120,000 510,000 11,694,0007 April 2002 $7.05 315,000 – – 40,000 275,00014 April 2002 $7.08 250,000 – – – 250,00014 April 2002 $7.05 100,000 – – – 100,00019 May 2002 $6.85 100,000 – – – 100,0005 August 2002 $7.84 115,000 – – 25,000 90,00029 September 2002 $7.89 1,800,000 – – 250,000 1,550,00022 December 2002 $8.60 – 11,371,000 49,000 259,000 11,063,0002 March 2003 $9.92 – 335,000 – – 335,0009 March 2003 $9.91 – 20,000 – – 20,0006 April 2003 $10.24 – 30,000 – – 30,0004 May 2003 $11.04 – 100,000 – – 100,00011 May 2003 $11.04 – 50,000 – – 50,00018 May 2003 $10.60 – 180,000 – – 180,0009 June 2003 $10.61 – 315,000 – – 315,00022 June 2003 $10.41 – 60,000 – – 60,00027 July 2003 $10.00 – 680,000 – – 680,00010 August 2003 $10.67 – 120,000 – – 120,00024 August 2003 $10.50 – 70,000 – – 70,00028 August 2003 $10.04 – 125,000 – – 125,00014 September 2003 $9.94 – 75,000 – – 75,00018 September 2003 $9.30 – 20,000 – – 20,000

57,054,000 13,551,000 18,766,000 2,804,000 49,035,000


107

NOTE 21. SHARE CAPITAL (CONTINUED)

Under the SOSPS, senior officers had been able to purchase a limited number of new ordinary shares issued by the Parent Entity at market price,but paid up initially to only $0.10 or $0.01. The residual is payable when called by the Parent Entity. Only fully paid ordinary shares qualify for thepayment of dividends.

Pursuant to amendments to the SOSPS rules, approved by the shareholders in January 1988, the Parent Entity has granted options to purchaseordinary shares. The option term is five years. Options are exercisable during the last two years of the term or within twelve months of retirementor death in service.

The aggregate par value of shares covered by the SOSPS shall not exceed 5% of the Parent Entity’s issued capital.

The consideration payable for grant of an option is 1 cent per share. The exercise price is equal to the closing market price of the Parent Entity’sordinary shares on the day before the option is offered to the officer. Upon exercising an option, the officer has the right to take up his or herentitlement in whole or in part (but in multiples of 1,000) as fully paid shares, in which event the whole of the exercise price (less the 1 cent pershare paid upon grant of the option) becomes payable. If the option is not exercised, it lapses and the 1 cent per share is forfeited by the officer.

Eligibility for participation in SOSPS, as now constituted, is restricted to full-time Group employees and Executive Directors designated by theDirectors from time to time to have achieved the status equal to or above senior officer. At 30 September 1998, 767 (1997 782) officers heldpartly paid ordinary shares or options under the SOSPS. Executive Director Mr R.P. Handley held 1,000,000 options at $4.10 per ordinary shareexercisable by 8 November 1998 (these options were exercised on 2 October 1998), 200,000 options at $5.51 per ordinary share exercisable by29 January 2001 and 500,000 options at $7.89 per ordinary share exercisable by 29 September 2002. Executive Director Dr D.R. Morgan held200,000 options at $5.51 per ordinary share exercisable by 29 January 2001, 175,000 options at $7.10 per ordinary share exercisable by28 January 2002 and 500,000 options at $7.89 per ordinary share exercisable by 29 September 2002.

Pursuant to a resolution passed at a special general meeting of the Parent Entity on 15 July 1993, Managing Director Mr R.L. Joss holds threetranches of non-transferable options, each enabling him to subscribe for 1,666,667 ordinary shares at a price of $2.85 per share. The first tranchewas exercised during 1997. The second tranche is exercisable between 19 January 1997 and 19 January 1999, but only if the Parent Entity’sordinary shares are trading on the Australian Stock Exchange at $3.90 per share or more. The third tranche is exercisable between 17 January 1998and 17 January 2000, but only if the Parent Entity’s ordinary shares are trading on the Australian Stock Exchange at $4.41 per share or more.

Pursuant to a resolution passed at the Annual General Meeting of the Parent Entity on 18 December 1997, Managing Director Mr R.L. Jossalso holds three tranches of non-transferable options, each enabling him to subscribe for 700,000 ordinary shares at a price of $10.27 per share. The first tranche is exercisable between 27 January 1999 and 27 January 2003, but only if the Parent Entity’s ordinary shares are trading on the Australian Stock Exchange at a price in excess of $10.93 per share. The second tranche is exercisable between 27 January 2000 and 27 January 2003 but only if the Parent Entity’s ordinary shares are trading on the Australian Stock Exchange at a price in excess of $11.64 per share. The third tranche is exercisable between 27 January 2001 and 27 January 2003 but only if the Parent Entity’s ordinary shares aretrading on the Australian Stock Exchange at a price in excess of $12.40 per share.

The names of all persons who hold options currently on issue are entered in the Bank’s register of option holders which may be inspected atCorporate Registry Services Pty Limited, 60 Carrington Street, Sydney, New South Wales.

108

NOTE 22. MATURITY ANALYSIS

The following maturity analysis of monetary assets and liabilities is based on contractual terms. The majority of the longer term monetary assetsare variable rate products. When managing interest rate and liquidity risks, the Group adjusts this contractual profile for customer behaviour.

Consolidated Maturity Analysis as at 30 September 1998

Over Over No At 1 day to 3 months 1 year to Over specific

Call Overdrafts 3 months to 1 year 5 years 5 years maturity Total$m $m $m $m $m $m $m $m

Australia

Assets

Cash and balances with central banks 316 – – – – – – 316

Due from other financial institutions 207 – 299 – – – – 506

Trading securities – – 2,485 2,291 558 447 – 5,781

Investment securities – – – – – 118 – 118

Loans 1,193 2,664 10,968 8,834 23,267 22,057 – 68,983

Acceptances of customers 640 – 7,136 650 1,791 65 – 10,282

Regulatory deposits – – – – – – 788 788

All other assets 997 – 1,183 367 1,261 2,769 11,003 17,580

Total assets 3,353 2,664 22,071 12,142 26,877 25,456 11,791 104,354

Liabilities

Due to other financial institutions 970 – – – – – – 970

Deposits and public borrowings 33,293 – 12,496 5,059 3,665 2,540 – 57,053

Bonds, notes and commercial paper – – 951 1,346 2,978 104 – 5,379

Acceptances of customers 640 – 7,136 650 1,791 65 – 10,282

All other liabilities 1,774 – 1,773 554 404 476 9,701 14,682

Intragroup payable 7,704 – – – – – – 7,704

Total liabilities excluding loan capital 44,381 – 22,356 7,609 8,838 3,185 9,701 96,070

Loan capital – – – – 1,386 350 745 2,481

Total liabilities 44,381 – 22,356 7,609 10,224 3,535 10,446 98,551

Net assets Australia (41,028) 2,664 (285) 4,533 16,771 21,803 1,345 5,803

Overseas

Assets


Due from other financial institutions 882 – 1,064 327 291 220 – 2,784

Trading securities – – 558 152 323 12 – 1,045

Investment securities – – 66 58 862 1,064 – 2,050

Loans 816 1,208 3,096 2,159 4,108 11,368 – 22,755

Acceptances of customers – – 43 – – – – 43

Regulatory deposits 48 – 325 – 35 – – 408

All other assets 960 – 318 15 1 – 2,499 3,793

Intragroup receivable 7,704 – – – – – – 7,704

Total assets 10,497 1,208 5,470 2,711 5,620 12,664 2,499 40,669

Liabilities

Due to other financial institutions 937 – 1,056 1,218 162 – – 3,373

Deposits and public borrowings 8,171 – 8,928 8,158 394 460 – 26,111

Bonds, notes and commercial paper – – 2,168 1,383 1,637 13 – 5,201

Acceptances of customers – – 43 – – – – 43

All other liabilities 1,051 – 620 20 – – 1,400 3,091

Total liabilities excluding loan capital 10,159 – 12,815 10,779 2,193 473 1,400 37,819

Loan capital – – – – – 42 – 42

Total liabilities 10,159 – 12,815 10,779 2,193 515 1,400 37,861

Net assets Overseas 338 1,208 (7,345) (8,068) 3,427 12,149 1,099 2,808

Net assets total (40,690) 3,872 (7,630) (3,535) 20,198 33,952 2,444 8,611


109

NOTE 22. MATURITY ANALYSIS (CONTINUED)

Consolidated Maturity Analysis as at 30 September 1997

Over Over No At 1 day to 3 months 1 year to Over specific

Call Overdrafts 3 months to 1 year 5 years 5 years maturity Total$m $m $m $m $m $m $m $m

Australia

Assets


Due from other financial institutions 621 – 279 10 – – – 910

Trading securities – – 4,831 – – – – 4,831

Investment securities – – – – – 114 – 114

Loans 1,930 2,534 7,411 6,710 16,224 19,595 – 54,404

Acceptances of customers 503 – 7,864 1,146 1,629 41 – 11,183

Regulatory deposits – – – – – – 634 634

All other assets 1,008 – 767 411 1,107 1,992 7,530 12,815

Total assets 4,294 2,534 21,152 8,277 18,960 21,742 8,164 85,123

Liabilities

Due to other financial institutions 288 – 210 2 – – – 500

Deposits and public borrowings 26,990 – 9,220 5,707 3,695 1,840 – 47,452

Bonds, notes and commercial paper – – 433 976 563 2,041 36 4,049

Acceptances of customers 503 – 7,864 1,146 1,629 41 – 11,183

All other liabilities 2,027 – 716 366 55 5 7,613 10,782

Intragroup payable 3,544 – – – – – – 3,544

Total liabilities excluding loan capital 33,352 – 18,443 8,197 5,942 3,927 7,649 77,510

Loan capital – – – – 671 485 695 1,851

Total liabilities 33,352 – 18,443 8,197 6,613 4,412 8,344 79,361

Net assets Australia (29,058) 2,534 2,709 80 12,347 17,330 (180) 5,762

Overseas

Assets


Due from other financial institutions 329 – 2,253 472 38 – – 3,092

Trading securities – – 1,412 – – – – 1,412

Investment securities – – 158 174 1,138 49 – 1,519

Loans 714 1,178 3,624 2,344 4,497 11,113 – 23,470

Acceptances of customers – – 56 – – – 3 59

Regulatory deposits 36 – 257 – 1 – – 294

All other assets – – – – – – 3,905 3,905

Intragroup receivable 3,544 – – – – – – 3,544

Total assets 4,712 1,178 7,760 2,990 5,674 11,162 3,908 37,384

Liabilities

Due to other financial institutions 69 – 3,134 867 – – – 4,070

Deposits and public borrowings 8,949 – 9,477 6,013 508 237 – 25,184

Bonds, notes and commercial paper – – 396 890 872 66 – 2,224

Acceptances of customers – – 56 – – – 3 59

All other liabilities 1,235 – 382 197 574 87 884 3,359

Total liabilities excluding loan capital 10,253 – 13,445 7,967 1,954 390 887 34,896

Loan capital – – – – – 44 – 44

Total liabilities 10,253 – 13,445 7,967 1,954 434 887 34,940

Net assets Overseas (5,541) 1,178 (5,685) (4,977) 3,720 10,728 3,021 2,444

Net assets total (34,599) 3,712 (2,976) (4,897) 16,067 28,058 2,841 8,206

110

NOTE 23. AVERAGE BALANCE SHEET AND INTEREST RATES

The following table lists the average balances and related interest for the major categories of the Group’s interest earning assets and interestbearing liabilites. Averages used are predominantly daily averages.

Consolidated1998 1997 1996

Average Average Average Average Average AverageBalance Interest Rate Balance Interest Rate Balance Interest Rate

$m $m % $m $m % $m $m %

Assets

Interest earning assets

Due from other financial institutions

Australia 872 34 3.9 845 51 6.0 882 55 6.2

New Zealand 1,421 115 8.1 1,009 93 9.2 1,151 107 9.3

Other Overseas 2,315 133 5.7 3,773 312 8.3 4,159 394 9.5

Investment and trading securities

Australia 5,592 347 6.2 6,018 566 9.4 4,698 378 8.0

New Zealand 1,217 76 6.2 820 49 6.0 664 56 8.4

Other Overseas 2,118 158 7.5 1,967 125 6.4 2,281 128 5.6

Regulatory deposits

Australia – – 648 7 1.1 617 15 2.4

New Zealand – – 1 – – 1 – –

Other Overseas 252 13 5.2 292 17 5.8 144 8 5.6

Loans and other receivables

Australia 67,496 5,794 8.6 57,087 5,073 8.9 56,200 5,679 10.1

New Zealand 19,131 1,987 10.4 19,695 2,040 10.4 12,798 1,375 10.7

Other Overseas 4,094 345 8.4 3,820 292 7.7 4,153 316 7.6

Impaired loans

Australia 570 15 2.6 628 39 6.2 1,230 61 5.0

New Zealand 122 6 4.9 140 12 7.9 190 9 4.7

Other Overseas 138 1 0.7 84 2 2.4 164 7 4.3

Intragroup receivable

Other Overseas 8,902 536 6.0 7,992 485 6.1 6,319 412 6.5

Interest earning assets and interest income including intragroup 114,240 9,560 8.4 104,819 9,163 8.7 95,651 9,000 9.4

Intragroup elimination (8,902) (536) (7,992) (485) (6,319) (412)

Total interest earning assets and interest income 105,338 9,024 8.6 96,827 8,678 9.0 89,332 8,588 9.6

Non-interest earning assets

Cash, bullion, due from other financialinstitutions and regulatory deposits 1,253 460 582

Other assets 23,217 17,876 16,055

Provisions for doubtful debts

Australia (1,379) (1,511) (1,667)

New Zealand (117) (149) (128)

Other Overseas (97) (91) (107)

Total non-interest earning assets 22,877 16,585 14,735

Acceptances of customers

Australia 11,315 11,298 12,058

New Zealand 43 13 24

Other Overseas 74 55 130

Total acceptances 11,432 11,366 12,212

Total assets 139,647 124,778 116,279


111

NOTE 23. AVERAGE BALANCE SHEET AND INTEREST RATES (CONTINUED)

Consolidated1998 1997 1996

Average Average Average Average Average AverageBalance Interest Rate Balance Interest Rate Balance Interest Rate

$m $m % $m $m % $m $m %

Liabilities

Interest bearing liabilities

Deposits

Australia 47,772 2,262 4.7 40,729 2,054 5.0 39,662 2,448 6.2

New Zealand 15,459 1,128 7.3 15,809 1,125 7.1 10,043 779 7.8

Other Overseas 9,170 538 5.9 8,843 492 5.6 6,628 399 6.0

Public borrowings by subsidiary borrowing corporations

Australia 5,383 329 6.1 5,367 384 7.2 5,399 419 7.8

New Zealand 392 31 7.9 450 38 8.4 501 41 8.2

Other Overseas 2 – – 16 2 12.5 30 4 13.3

Due to other financial institutions

Australia 498 22 4.4 300 19 6.3 271 21 7.7

New Zealand 110 15 13.6 81 11 13.6 82 8 9.8

Other Overseas 3,803 238 6.3 4,454 361 8.1 6,520 559 8.6

Loan capital

Australia 2,110 169 8.0 2,001 157 7.8 2,641 168 6.4

New Zealand 42 4 9.5 52 5 9.6 (61) – –

Other Overseas 15 – – – – – – – –

Other interest bearing liabilities

Australia 5,876 384 6.5 4,371 318 7.3 3,645 289 7.9

New Zealand 1,644 146 8.9 846 121 14.3 225 35 15.6

Other Overseas 2,357 138 5.9 2,096 111 5.3 1,918 96 5.0

Intragroup payable

Australia 5,014 294 5.9 4,118 236 5.7 3,319 217 6.5

New Zealand 3,888 243 6.3 3,874 249 6.4 3,000 195 6.5

Interest earning liabilities and interest expense including intragroup 103,535 5,941 5.7 93,407 5,683 6.1 83,823 5,678 6.8

Intragroup elimination (8,902) (536) (7,992) (485) (6,319) (412)

Total interest bearing liabilities and interest expense 94,633 5,405 5.7 85,415 5,198 6.1 77,504 5,266 6.8

Non-interest bearing liabilities

Deposits and due to other financial institutions

Australia 3,581 3,169 3,143

New Zealand 1,049 1,168 686


Other liabilities 19,575 15,229 14,203

Total non-interest bearing liabilities 24,720 20,014 18,468

Acceptances

Australia 11,315 11,298 12,058

New Zealand 43 13 24


Total acceptances 11,432 11,366 12,212

Total liabilities 130,785 116,795 108,184

Ordinary shareholders’ equity 8,484 7,380 7,489

Preference shareholders’ equity 375 600 600

Outside equity interests 3 3 6

Total shareholders’ equity 8,862 7,983 8,095

Total liabilities and shareholders’ equity 139,647 124,778 116,279

112

NOTE 24. GROUP SEGMENT INFORMATION

Segmentation of assets, revenue and profit is based on the location of the office in which these items are booked.

The Group operates predominantly in the financial services industry.

1998 1997 1996

$m % $m % $m %

Geographic Segments

Assets

Australia 104,354 75.9 85,123 71.4 86,365 71.1

New Zealand 23,799 17.4 24,157 20.4 23,328 19.2

Pacific Islands 1,786 1.3 1,629 1.4 1,560 1.3

Asia 2,992 2.2 3,736 3.2 4,598 3.8

Americas 2,439 1.8 1,746 1.5 2,580 2.1

Europe 1,949 1.4 2,572 2.1 3,082 2.5

Total 137,319 100.0 118,963 100.0 121,513 100.0

Operating revenue from outside the Group(excluding gross up)

Australia 7,626 70.0 6,889 66.9 7,246 72.6

New Zealand 2,538 23.3 2,578 25.1 1,764 17.6

Pacific Islands 224 2.1 199 1.9 234 2.3

Asia 204 1.9 296 2.9 382 3.8

Americas 125 1.1 181 1.8 170 1.7

Europe 182 1.6 147 1.4 196 2.0

Total 10,899 100.0 10,290 100.0 9,992 100.0

Intersegment operating revenue

Australia 129 11.2 60 6.2 59 6.7

New Zealand 5 0.4 5 0.5 6 0.7

Pacific Islands 25 2.2 21 2.2 34 3.9

Asia 193 16.7 245 25.3 430 49.1

Americas 465 40.3 486 50.2 253 28.9

Europe 337 29.2 151 15.6 93 10.7

Total 1,154 100.0 968 100.0 875 100.0

Operating profit before abnormal items and income tax (excluding gross up)

Australia 1,472 76.1 1,198 67.1 1,208 77.6

New Zealand 320 16.5 407 22.8 172 11.1

Pacific Islands 83 4.3 52 2.9 53 3.4

Asia (65) (3.4) 25 1.4 24 1.5

Americas 54 2.8 50 2.8 40 2.6

Europe 71 3.7 54 3.0 59 3.8

Total 1,935 100.0 1,786 100.0 1,556 100.0

Operating profit after income tax attributable to shareholders of Westpac Banking Corporation

Australia 963 75.7 881 65.8 869 76.8

New Zealand 211 16.6 245 21.5 114 10.1

Pacific Islands 62 4.9 37 2.9 37 3.2

Asia (76) (6.0) 24 1.9 16 1.5

Americas 41 3.2 50 3.8 37 3.2

Europe 71 5.6 54 4.1 59 5.2

Total 1,272 100.0 1,291 100.0 1,132 100.0


113

NOTE 25. CREDIT RISK CONCENTRATIONS

The following table sets out the credit risk concentrations of the Group:

Consolidated Consolidated1998 1997

Trading Investment Contingent Securities1 Securities1 Loans Acceptances1 Liabilities1,2 Derivatives1,2 Total Loans

$m $m $m $m $m $m $m $m

Australia

Government and other public authorities 4,246 112 328 – 1,016 470 6,172 472

Agriculture, forestry and fishing – – 1,077 830 90 37 2,034 1,010

Commercial and financial 1,535 6 16,811 6,339 5,806 9,787 40,284 16,037

Real estate – construction – – 1,634 1,020 651 12 3,317 1,357

Real estate – mortgage – – 38,911 1,862 832 – 41,605 26,223

Instalment loans and other personal lending – – 9,314 231 225 – 9,770 9,248

Lease financing – – 2,254 – – – 2,254 1,477

Total Australia 5,781 118 70,329 10,282 8,620 10,306 105,436 55,824

New Zealand

Government and other public authorities 900 – 225 – 95 – 1,220 330

Agriculture, forestry and fishing – – 1,614 – 53 – 1,667 1,427

Commercial and financial 94 – 6,203 29 404 1,149 7,879 6,007

Real estate – construction – – 143 – – – 143 200

Real estate – mortgage – – 10,469 – 798 – 11,267 11,489

Instalment loans and other personal lending 19 – 253 – – – 272 366

Lease financing – – 24 – – – 24 28

Total New Zealand 1,013 – 18,931 29 1,350 1,149 22,472 19,847

Other Overseas

Government and other public authorities 32 172 56 – 23 5 288 41

Agriculture, forestry and fishing – – 38 – 14 – 52 47

Commercial and financial – 1,878 2,386 14 3,468 930 8,676 2,681

Real estate – construction – – 74 – 40 1 115 64

Real estate – mortgage – – 1,082 – 8 – 1,090 777

Instalment loans and other personal lending – – 282 – 53 – 335 123

Lease financing – – 160 – – – 160 58

Total Other Overseas 32 2,050 4,078 14 3,606 936 10,716 3,791

Total 6,826 2,168 93,338 10,325 13,576 12,391 138,624 79,462

Other risk concentrations

Amounts due from other financial institutions 3,290

Regulatory deposits 1,196

Total gross credit risk 143,110

1 Comparative figures for the year ended 30 September 1997 are not available as a result of the first year application of AASB 1033, “Presentation andDisclosure of Financial Instruments”

2 Credit risk concentrations for contingent liabilities and derivatives are based on definitions per notes 29 and 30.

Collateral security, in the form of real property or a floating charge, is generally taken for business credit except for major government, bank and corporatecounterparties of strong financial standing. Longer term consumer finance is generally secured against real estate while revolving consumer credit isgenerally unsecured.

114


1998 1997 1996 1998 1997$’000 $’000 $’000 $’000 $’000

NOTE 26. AUDITORS’ REMUNERATION

Remuneration for audit or review of the financial statements

Auditors of the Parent Entity 1

Messrs Lynn and Chowdry 2,347 2,134 1,440 2,347 2,134

PricewaterhouseCoopers 1,092 1,029 1,070 – –

Other auditors of controlled entities 30 27 16 – –

3,469 3,190 2,526 2,347 2,134

Remuneration for other services by the Parent Entity auditors 1 2 3

Messrs Lynn and Chowdry 202 202 151 202 202

PricewaterhouseCoopers 3,447 2,595 2,117 2,899 1,881

3,649 2,797 2,268 3,101 2,083

1 The auditors of the Parent Entity are Messrs Lynn and Chowdry. Their firm, PricewaterhouseCoopers (formerly Coopers & Lybrand), audited the controlledentities.

2 Other services includes $564,000 (1997 $671,000; 1996 $632,000) for regulatory and statutory reporting requirements.3 In addition, Coopers & Lybrand LLP (USA firm) provided consultancy services of $746,000 to the Group in 1998 (1997 $4,706,000). The USA firm does

not provide any auditing services to the Group.

Coopers & Lybrand and Price Waterhouse merged on 1 July 1998. The merged firm PricewaterhouseCoopers (“PwC”) is the auditor

of the controlled entities with effect from 1 July 1998. Auditors remuneration includes all amounts paid to Coopers & Lybrand in the

nine months to 30 June 1998 and all amounts paid to PwC in the 3 months to 30 September 1998.

A small number of former Price Waterhouse partners have loans with Westpac. In order to eliminate potential conflicts of interest,

Class Order 98/1869 dated 22 September 1998 was received from ASIC which “grandfathers” all indebtedness of these partners.

This Class Order requires:

• Westpac to report to the ASIC within thir ty days of its occurrence any event of default or any enforcement action taken on

these loans;

• the Directors of Westpac to report to the ASIC within seven days after signing the Directors’ Report whether, in the opinion of

the Audit Committee, the class order has been complied with; and

• PwC to report to the ASIC within seven days after signing the Auditors’ Report whether the audit has been influenced by the

indebtedness.


1998 1997 1998 1997$m $m $m $m

NOTE 27. EXPENDITURE COMMITMENTS

Commitments for capital expenditure not provided for in the financial statements:

Payable within one year 49 25 35 21

Total commitments for capital expenditure not provided for in the financial statements 49 25 35 21

Lease commitments (all leases are classified as operating leases)

Land and buildings 995 852 931 782

Plant and equipment 89 22 89 22

Total lease commitments 1,084 874 1,020 804

Due within one year 229 184 212 164

Due within 1–2 years 185 156 171 134

Due within 2–5 years 299 235 273 214

Due after 5 years 371 299 364 292

Total lease commitments 1,084 874 1,020 804


115

NOTE 28. SUPERANNUATION COMMITMENTS

Numerous superannuation schemes are operated throughout the Group. Contributions to the various schemes are at rates, reviewed from timeto time, sufficient to keep the schemes solvent based on actuarial assessments.

The Group’s two principal schemes for employees in Australia, the Westpac Staff Superannuation Plan (“WSSP”) and the AGC Staff RetirementFund (“AGCSRF”) are defined benefit schemes and provide lump sum and pension benefits. As both schemes are in surplus, the Group’scontributions for the years ended 30 September 1998, 1997 and 1996 were nominal.

The continued existence of surpluses in the two principal schemes in Australia at 30 September 1998 has been confirmed. Actuarial reviews, asat 30 June 1997, were carried out by independent actuaries; Mr G.B.K. Trahair, FIA, FIAA, in respect of the WSSP and in respect of the AGCSRF,Mr J. Mitchell, Bsc FIA FIAA. See also notes 1(h)i, 4 and 16. The next full actuarial review is expected to be undertaken at 30 June 2000.

The financial status of the WSSP, the AGCSRF and the principal defined-benefit schemes overseas is as follows:

OverseasWSSP AGCSRF Schemes Total

$m $m $m $m

(i) Present value of employees’ accrued benefits 1,304 101 287 1,692

(ii) Net market value of assets held by the scheme to meet future benefit payments 2,330 196 414 2,940

Excess of assets held to meet future benefit payments over present value of employees’ accrued benefits 1,026 95 127 1,248

(iii) Vested benefits 1,305 105 274 1,684

The above amounts were measured as at:WSSP and AGCSRF item (i) 30 June 1997; items (ii) and (iii) 30 June 1998Overseas Schemes various dates between 5 April 1997 and 30 June 1998.

The Group has no material obligations in respect of post-retirement employee benefits other than pensions.

NOTE 29. CONTINGENT LIABILITIES AND CREDIT COMMITMENTS

The Group is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financing needs ofits customers and in managing its own risk profile. These financial instruments include commitments to extend credit, bill endorsements, financialguarantees, standby letters of credit and underwriting facilities.

The Group’s exposure to credit loss in the event of non-per formance by the other party to such financial instruments is represented by thecontract or notional amount of those instruments. However, some commitments to extend credit and provide underwriting facilities can becancelled or revoked at any time at the Group’s option.

The Group uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The Group takes collateral where it is considered necessary to support, both on and off-balance sheet, financial instruments with credit risk. TheGroup evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral taken, if deemed necessary, on the provisionof a financial facility is based on management’s credit evaluation of the counterparty. The collateral taken varies but may include cash deposits,receivables, inventory, plant and equipment, real estate and investments.

Off-balance sheet credit-risk-related financial instruments are as follows:

Consolidated Parent Entity1998 1997 1998 1997

Contract or Contract or Contract or Contract or Notional Credit Notional Credit Notional Credit Notional Credit Amount Equivalent 1 Amount Equivalent 1 Amount Equivalent 1 Amount Equivalent 1

$m $m $m $m $m $m $m $m

Credit-risk related instruments

Bill endorsements – – 28 28 – – 28 28

Standby letters of credit and financial guarantees 1,841 1,841 2,351 2,351 1,745 1,745 2,213 2,213

Trade letters of credit 2 372 74 368 115 365 73 362 113

Non-financial guarantees 3 3,293 1,647 2,790 1,395 3,286 1,643 2,782 1,391

Commitments to extend credit:

Residual maturity less than 1 year 4 15,428 – 13,299 – 15,428 – 13,299 –

Residual maturity 1 year or more 7,033 3,516 6,486 3,243 7,033 3,516 6,482 3,241

Other commitments 5 6,614 6,498 5,037 4,950 7,737 6,547 5,186 4,953

Total credit-risk-related instruments 34,581 13,576 30,359 12,082 35,594 13,524 30,352 11,939

1 Credit equivalents are determined in accordance with the APRA’s risk-weighted capital adequacy guidelines (refer note 30).2 Trade letters of credit are for terms up to 1 year secured against an underlying shipment of goods or backed by a confirmatory letter of credit from

another bank.3 Non-financial guarantees include other trade related letters of credit and obligations backing the per formance of commercial contracts.4 The credit conversion factor is 0% for credit commitments with a residual maturity of less than one year or which can be unconditionally cancelled by

the Group at any time without notice.5 Other commitments include forward purchases of assets, forward forward deposits and underwriting commitments.

116

NOTE 29. CONTINGENT LIABILITIES AND CREDIT COMMITMENTS (CONTINUED)

Additional liabilities and commitments(i) An assessed liability of $1 million (1997 $1 million) based on an actuarial assessment as at 30 September 1998, as a self-insurer

under the Accident Compensation Act, 1985 (Victoria) and an assessed liability of $9 million (1997 $9 million) based on an actuarial

assessment as at 30 September 1998, as a self-insurer under the Workers’ Compensation Act, 1987 (New South Wales). Adequate

provision has been made for these liabilities in the provision for holiday leave and other staff benefits (note 19).

(ii) A contingent liability in respect of actual and potential claims and proceedings which at the date of adoption of these financial

statements has not been determined. An assessment of the Group’s likely loss has been made on a case-by-case basis and provision

has been made where appropriate within the provision for doubtful debts (note 12) or provision for non-lending losses (note 19).

(iii) A contingent liability for termination benefits under service agreements with certain Group executives. The maximum amount of such

contingent liability at 30 September 1998 was $12 million (1997 $12 million).

(iv) Commitments arising from membership in the Australian Paper Clearing System and the Bulk Electronic Clearing System. In accordance

with the Regulations and Procedures governing these systems, the Parent Entity (proportionate to and in conjunction with other

members) may be required, at the request of and in discussion with the RBA, to provide temporary liquidity support to another

member financial institution which is unable to provide settlement. In conjunction with the RBA, member financial institutions are

reviewing current arrangements with the view of eliminating these commitments. Extensions of credit by the Parent Entity to member

financial institutions would be subject to appropriate credit criteria.

(v) Commitments arising from membership in the High Value Clearing System. In accordance with the Regulations and Procedures

governing this system, the Parent Entity (proportionate to and in conjunction with other members) may be required, at the request

of and in discussion with the RBA, to provide liquidity support to another member financial institution. This commitment arises only

where the member financial institution is unable to provide settlement for items exchanged over SWIFT–PDS concurrent with a

technical failure or disruption to the Real Time Gross Settlement (RTGS) system. Extensions of credit by the Parent Entity to

member financial institutions would be subject to appropriate credit criteria.

Parent Entity guarantees and undertakingsExcluded from the consolidated amounts disclosed above are the following guarantees and undertakings extended to entities in the

Group by the Parent Entity:

(i) Guarantee of commercial paper issued by Westpac Capital Corporation, a company incorporated in the United States of America;

(ii) Issue of letters of comfort in respect of certain controlled entities in the normal course of business. The letters recognise that the

Parent Entity has a responsibility to ensure that those controlled entities continue to meet their obligations;

(iii)Guarantee of the repayment of loans made by Westpac Bank-PNG-Limited to the extent that they exceed a prescribed limit;

(iv) Guarantee of certain liabilities of Westpac Investment Management Pty Limited to the extent of $25 million; and

(v) Guarantee of the per formance of lessees under certain finance leases entered into by AGC as lessor.

NOTE 30. DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives are bilateral contracts or payment exchange agreements whose value derives from the value of an underlying asset, reference

rate or index. Derivatives are flexible and cost-effective tools for assisting in the management of interest rate, exchange rate, commodity,

equity and credit exposures, and for structuring finance and investment strategies. Derivatives can provide the ability to transfer or

manage risk, improve liquidity, access cost effective funding, increase investment options and enhance yield. Derivative financial

instruments include forward and futures contracts, swaps and options.

A forward contract obliges one party to buy and the other to sell, a specific underlying product/instrument at a specific price, amount,

and date in the future. A forward rate agreement (FRA) is an agreement between two parties establishing a contract interest rate on a

notional principal over a specified period commencing at a specific future date.

A futures contract is similar to a forward contract. A futures contract obliges its owner to buy a specific underlying commodity or

financial instrument at a specified price on the contract maturity date (or to settle the value for cash). Futures are exchange traded.

A swap transaction obliges the two parties to the contract to exchange a series of cash-flows at specified intervals known as payment

or settlement dates.

An option contract gives the option holder the right, but not the obligation, to buy or sell a specified amount of a given commodity or

financial instrument at a specified price during a certain period or on a specific date. The writer of the option contract is obliged to

per form if the holder exercises the right contained therein.

Westpac uses derivative contracts in two distinct capacities, as a dealer and as an end user as part of its asset and liability

management activities.

The following terms are used in the remainder of this note to describe the Group’s exposure to derivatives.

The “notional amount” is a measure of volume which may be used for examining changes in derivative activity over time. The notional

amount is the face value of the contract. Unlike an on-balance sheet financial instrument, the notional amount of a derivative does not

reflect the amount at risk which is generally only a small fraction of this value.


117

NOTE 30. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

The “regulatory credit equivalent” is calculated for capital adequacy purposes using the APRA’s current exposure method. Credit equivalent

amounts are calculated as replacement cost (positive mark-to-market) plus an add-on for potential credit exposure based on a credit

conversion factor (percentage) of the notional amount. The credit conversion factors are as shown below:

Less Over than 1 year to Over

1 year 5 years 5 years% % %

Interest rate Nil 0.5 1.5

Foreign exchange (including gold) 1.0 5.0 7.5

Equities 6.0 8.0 10.0

Precious metals (excluding gold) 7.0 7.0 8.0

Other commodities 10.0 12.0 15.0

The “positive mark-to-market (replacement cost)” is the cost of replacing all transactions in a gain position to Westpac and is included in

‘other assets’ on the balance sheet. This measure is the industry standard for the calculation of current credit risk.

The “negative mark-to-market” represents the cost to Westpac’s counterparties of replacing all transactions in a loss position to Westpac

and is included in ‘other liabilities’ on the balance sheet. The mark-to-market values do not include any offsetting physical positions that

may exist, including structural balance sheet positions, and they do not include any benefits from master netting agreements.

Details of the Group’s trading derivatives outstanding in terms of notional amount, regulatory credit equivalent and mark-to-market

values (both positive and negative) as at 30 September are shown in the following table:

Positive Mark-to-

Regulatory market NegativeNotional Credit (replacement Mark-to-Amount Equivalent cost) market

Trading Derivatives Outstanding $m $m $m $m

1998

Interest rate

Futures 15,095 – 10 –

Forwards 19,850 17 16 10

Swaps 126,747 3,598 3,030 3,208

Purchased options 4,731 35 28 3

Sold options 6,099 846 5 12

Foreign exchange

Forwards 304,560 9,980 6,774 6,082

Swaps 26,354 2,691 1,644 1,505

Purchased options 14,398 1,091 857 –

Sold options 14,294 – – 455

Commodities 696 90 27 26

Equities 1,016 59 – 265

Total trading derivatives outstanding 533,840 18,407 12,391 11,566

118

NOTE 30. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Positive Mark-to-

Regulatory market NegativeNotional Credit (replacement Mark-to-Amount Equivalent cost) market

Trading Derivatives Outstanding $m $m $m $m

1997

Interest rate

Futures 20,091 – 1 5

Forwards 23,593 87 12 14

Swaps 127,537 3,458 3,072 2,889

Purchased options 26,708 46 44 24

Sold options 3,243 1,141 – 20

Foreign exchange

Forwards 241,546 6,955 4,425 4,446

Swaps 21,149 1,722 912 1,244

Purchased options 9,676 342 187 –

Sold options 10,953 – – 177

Commodities 1,069 94 56 55

Equities 1,313 54 – 28

Total trading derivatives outstanding 486,878 13,899 8,709 8,902

Derivatives positions used in the Group’s asset and liability management activities are transacted internally with the Group’s independentlymanaged dealing units. The dealing units, in turn, cover their position in the market place.

The following table shows the notional amount of such internal derivative transactions outstanding at year end. The notional amounts do notrepresent direct credit exposures. Credit risk does arise in respect of offsetting external transactions. The regulatory credit equivalent is includedin the above table of trading derivatives.

Notional Amount

1998 1997$m $m

Derivatives used for asset and liability management purposes

Interest rate

Futures 9,288 14,464

Forwards 4,200 1,088

Swaps 33,932 30,757

Purchased options 86 61

Foreign exchange

Forwards 7,180 3,271

Swaps 14,226 13,290

Total derivatives used for asset and liability management purposes 68,912 62,931

Where hedge transactions are terminated prior to the maturity of the underlying exposures, gains or losses on termination are deferred andrecognised over the remaining term of the maturity. As at 30 September 1998, the net amount of the deferred gains in relation to terminatedhedge contracts was $6.6 million (1997 $7.0 million deferred losses) which will be amortised to the profit and loss statement.


119

NOTE 31. INTEREST RATE RISK

Sensitivity to interest rates arises from mismatches in the interest rate characteristics of the assets and their corresponding liability funding.One of the major causes of these mismatches is timing differences in the repricing of the asset and liabilities. These mismatches are activelymanaged as part of the overall interest rate risk management process which is conducted in accordance with Group policy guidelines.

The following table represents a break down of the contractual repricing, by time, of Australia and New Zealand’s net asset position as at30 September 1998. The Group uses this contractual repricing information as a base, which is then altered to take account of consumerbehaviour, to manage its interest rate risk.

Less Over Over Over Non- Weightedthan 1 1 month to 3 months 1 year to Over interest Averagemonth 3 months to 1 year 5 years 5 years bearing Total Rate

$m $m $m $m $m $m $m %

Australia

Assets

Cash and balances with central banks 10 – – – – 306 316 1.5%

Due from other financial institutions 478 – – – – 28 506 3.7%

Trading securities 5,214 343 – – – 224 5,781 5.4%

Investment securities 118 – – – – – 118 2.5%

Loans 41,539 11,470 5,220 12,099 – (1,345) 68,983 8.7%

Acceptances of customers – – – – – 10,282 10,282 –

Statutory deposits – – – – – 788 788 –

Fixed assets – – – – – 1,268 1,268 –

Other assets 616 – – – – 15,696 16,312 0.3%

Total assets 47,975 11,813 5,220 12,099 – 27,247 104,354 6.1%

Liabilities

Due to other financial institutions 205 – – – – 765 970 5.8%

Deposits and public borrowings 42,781 6,738 3,562 309 – 3,663 57,053 6.9%

Bonds, notes and commercial paper 5,379 – – – – – 5,379 3.1%

Acceptances – – – – – 10,282 10,282 –

Other liabilities 3 41 – – – 14,638 14,682 5.5%

Intragroup payable 7,704 – – – – – 7,704 6.2%

Total liabilities excluding loan capital 56,072 6,779 3,562 309 – 29,348 96,070 6.3%

Loan capital – – 2,481 – – – 2,481 9.5%

Total liabilities 56,072 6,779 6,043 309 – 29,348 98,551

Net assets (8,097) 5,034 (823) 11,790 – (2,101) 5,803

Shareholders’ equity – – – – – 5,798 5,798

Outside equity interests in controlled entities – – – – – 5 5

Total shareholders’ equity – – – – – 5,803 5,803

Off balance sheet Items 1,522 (5,755) 2,741 1,994 (502) – –

Net mismatch – Australia (6,575) (721) 1,918 13,784 (502) (7,904) –

New Zealand

Assets

Cash and balances with central banks – – – – – 62 62 1.5%

Due from other financial institutions 1,010 14 – – – 144 1,168 3.7%

Trading securities 637 203 159 14 – – 1,013 5.4%

Loans 8,850 2,759 2,687 4,633 3 (110) 18,822 8.7%

Acceptances of customers – – – – – 29 29 –

Fixed assets – – – – – 242 242 –

Other assets – – – – – 2,463 2,463 0.3%

Total assets 10,497 2,976 2,846 4,647 3 2,830 23,799 6.1%

Liabilities

Due to other institutions 142 2 – – – 218 362 5.8%

Deposits and public borrowings 10,000 3,191 2,497 213 – 657 16,558 6.9%

Bonds, notes and commercial paper 929 845 520 73 – – 2,367 3.1%

Acceptances – – – – – 29 29 –

Other liabilities 358 – – – – 1,179 1,537 5.5%

Intragroup payable 2,356 – – – – – 2,356 6.2%

Total liabilities excluding loan capital 13,785 4,038 3,017 286 – 2,083 23,209 6.2%

Loan capital – – – 42 – – 42 8.0%

Total liabilities 13,785 4,038 3,017 328 – 2,083 23,251

Net assets (3,288) (1,062) (171) 4,319 3 747 548

Total shareholders’ equity – – – – – 548 548

Off balance sheet Items 658 1,727 (290) (2,095) – – –

Net mismatch – New Zealand (2,630) 665 (461) 2,224 3 199 –

120

NOTE 32. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following information represents estimates of fair values at a point in time. Quoted market prices, when available, are used as

the measure of fair values. However, for a significant portion of the Group’s financial instruments, quoted market prices do not exist.

For such financial instruments, fair values presented are estimates derived using net present value or other valuation techniques.

These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk

characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other

factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. Therefore, for substantially all

financial instruments, the fair value estimates presented herein are not necessarily indicative of the amount the Group could have

realised in a sales transaction at 30 September 1998.

The fair value estimates were determined by application of the methods and assumptions described below.

Certain short-term financial instrumentsFor cash and cash at bank, loans to dealers in the Australian short term money market, amounts due from other financial institutions

with maturities of less than three months, and other types of short-term financial instruments recognised in the balance sheet under

“other assets” or “other liabilities”, the carrying amount is a reasonable estimate of fair value.

Floating rate financial instrumentsFor floating rate financial instruments, the carrying amount is generally a reasonable estimate of fair value.

Trading and investment securitiesFor trading securities, the estimated fair values, which are also the carrying amounts, are generally based on quoted market prices or

dealer quotes. For investment securities, fair values are also based on quoted market prices or dealer quotes, or, where there is no

ready market in certain securities, fair values have been assessed by reference to interest yields.

Regulatory depositsThe Group is required by law, in Australia and in several other countries in which it operates, to lodge regulatory deposits with the local

central bank at a rate of interest below that generally prevailing in that market. As the Group’s ability to carry on the business of

banking is conditional upon the maintenance of these deposits, their fair value is assumed to be equal to their carrying value,

notwithstanding the below market rate of interest being earned thereon.

Due from other financial institutions and loansFor amounts due from other financial institutions with maturities of three months or more and fully-per forming fixed-rate loans, fair values

have been estimated by reference to current rates at which similar advances would be made to banks and other borrowers with a similar

credit rating and the same remaining maturities.

For variable-rate loans, excluding impaired loans, the carrying amount is generally a reasonable estimate of fair value.

The fair values of impaired loans are estimated by discounting the estimated future cash flows using current market interest rates

incorporating an appropriate risk factor or, where such loans are collateralised and have been written down to the current market value

of the collateral, the estimated fair-value is based on the written-down carrying value.

In arriving at the fair values for loans on the above bases, the total fair value of the entire loan portfolio has been reduced by

$1,238 million (1997 $1,249 million) being the carrying value of the general provision for doubtful debts which covers unidentified

losses inherent in the portfolio.

Acceptances of customersFor acceptances of customers and the contra liability acceptances, the carrying value has been discounted using current lending rates

and a weighted-average period to maturity to arrive at an estimated fair value.

Other investmentsFor shares in companies, the estimated fair values are based on quoted market prices or on the Group’s share of net assets at

book value.

Deposits and public borrowings; due to other financial institutions; bonds, notes and commercial paper; and subordinated debtThe fair value of demand deposits is the amount payable on demand at the reporting date. For other liabilities with maturities of less

than three months, the carrying amount is a reasonable estimate of fair value.

For liabilities with maturities of three months or longer, fair values have been based on quoted market prices, where such prices exist.

Otherwise, fair values have been estimated using the rates currently offered for similar liabilities of similar remaining maturities.

Commitments to extend credit, financial guarantees, letters of credit and bill endorsementsA nil fair value has been ascribed to commitments (contractual value 1998 $29.1 billion, 1997 $24.8 billion) and non-financial

guarantees, letters of credit and bill endorsements (combined contractual value 1998 $5.5 billion, 1997 $5.5 billion) on the basis that

these financial instruments generate ongoing fees at the Group’s current pricing levels which are in line with general market prices.

Exchange-rate and interest-rate contracts and commodity-swap agreementsThe fair value of exchange-rate and interest-rate contracts and commodity-swap agreements (used for hedging purposes) is the estimated

amount the Group would receive or pay to terminate the contracts at the reporting date.

The net fair value of the financial assets and liabilities are materially the same as the fair values disclosed in the table below.


121

NOTE 32. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Estimated fair value of the Group’s financial instruments at 30 September are as follows:

1998 1997

Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value

$m $m $m $m

Financial assets

Cash and short term liquid assets 403 403 321 321

Due from other financial institutions 3,290 3,290 4,002 4,002

Trading securities 6,826 6,826 6,243 6,243

Investment securities 2,168 2,178 1,633 1,620

Regulatory deposits 1,196 1,196 928 928

Loans (net of unearned income)

Loans and other receivables 90,684 76,986

Specific provisions for bad and doubtful debts (357) (334)

General provisions for bad and doubtful debts (1,238) (1,249)

89,089 89,763 75,403 74,569

Finance and leveraged leases 2,654 2,476

Specific provisions for bad and doubtful debts (5) (5)

2,649 2,663 2,471 2,527


Other assets

Accrued interest receivable 412 412 423 423

Securities purchased under agreement to resell 370 370 554 554

Securities sold not delivered 1,527 1,527 1,072 1,072

Other financial markets assets 13,007 13,007 9,370 9,370

Other investments 580 617 495 495

Financial liabilities

Due to other financial institutions 4,343 4,343 4,570 4,570

Deposits and public borrowings 83,164 83,093 72,636 72,552

Bonds, notes and commercial paper 10,580 10,578 6,273 6,254


Other liabilities

Accrued interest payable 954 954 711 711

Securities sold under agreement to repurchase 139 139 214 214

Securities short sold 1,071 1,071 1,115 1,115

Securities purchased not delivered 1,119 1,119 260 260

Other financial markets liabilities 11,486 11,486 9,276 9,276

Subordinated bonds, notes and debentures 1,778 1,781 1,200 1,163

Subordinated undated capital notes 745 745 695 689

Off balance sheet derivative financial instruments

Exchange-rate and interest-rate contracts used for hedging purposes in a net receivable position – 376 – 344

122


123

Westpac Banking Corporation (a),(c) Australia

52 Collins Street Pty Limited (g) Australia

A.G.C. (Advances) Limited Australia

General Credits Holdings Limited Australia

General Credits Limited Australia

G.C.L. Investments Limited Australia

Island Princess Holdings Pty Limited Australia

The Airlie Trust Australia

Reef International Pty Limited Australia

Australian Guarantee Corporation Limited Australia

Acorus Pty Limited (in liquidation) Australia

A.G.C. (Commercial) Limited Australia

M.A.C. Nominees Pty Limited Australia

Mazbond Pty Limited Australia

Palaver Pty Limited Australia

Reveille Pty Limited Australia

Mutual Acceptance (Insurance) Limited

(in voluntary liquidation) Australia

Runkelli Pty Limited Australia

S.C.F. (No. 5) Limited Australia

S.C.F. (No. 6) Limited Australia

A.G.C. (Developments) Limited


A.G.C. (Finance) Limited Australia

A.G.C. (General Finance) Limited Australia

A.G.C. (Industrial) Limited Australia

A.G.C. (Industrial) Leasing Pty Limited Australia

A.G.C. (Industrial) Victoria Limited

(in liquidation) Australia

A.G.C. (Insurance Premium Funding) Limited Australia

A.G.C. (Properties) Limited Australia

A.G.C. House Limited Australia

A.G.C. (Investments) Limited (in liquidation) Australia

A.G.C. (Leasing) Limited Australia

A.G.C. (Pacific) Limited Papua New Guinea

A.G.C. Finance (Vanuatu) Limited Vanuatu

A.G.C. Projects Pty Limited (in liquidation) Australia

A.G.C. (Securities) Limited Australia

AOC Holdings Limited Australia

Autodirect Pty Ltd Australia

Fitzroy Leasing Pty Limited (in liquidation) Australia

Colmso Pty Limited Australia

Colmtea Pty Limited Australia

Como Properties Pty Limited Australia

Como Properties No. 2 Pty Limited


Midland Credit Limited (in liquidation) Australia

Ormiston Pty Limited Australia

Broadbeach International Holding Trust Australia

Pranbrooke Pty Limited Australia

Hesse Pty Limited Australia

Howlong Pty Limited Australia

PersonalDirect Limited

(formerly A.G.C. Overseas Holdings Limited) Australia

Piccadilly of Sydney Pty Limited (f) Australia

Jaunty Pty Limited Australia

Piccadilly Plaza Trust Australia

Promenade Foodhall Pty Limited (in liquidation) Australia

Sarnia Pty Limited (f) Australia

The Swan Trust Australia

Tarval Pty Limited (in liquidation) Australia

Traders Finance Corporation Limited Australia

Vicpac Chatswood Pty Limited (f) Australia

Vicpac Unit Trust Australia

Bank of Kiribati Limited (i) Kiribati

Beach Hill Investments (No 2) Pty Limited (g) Australia

Beach Hill Investments (No 3) Pty Limited (g) Australia

Beach Hill Investments Pty Limited (g) Australia

Bill Acceptance Corporation Limited Australia

Mortgage Management Limited Australia

Biralo Pty Limited (d) Australia

Brenmar Holdings Pty Limited (g) Australia

BLE Capital Limited Australia

BLE Capital Investment Pty Limited Australia

BLE Development Pty Limited Australia

BLE Holdings Pty Limited Australia

BLE Capital (NZ) Limited New Zealand

C.B.A. Limited Australia

Belliston Pty Limited Australia

Westpac Properties-Vic-Limited Australia

Westpac Properties-NSW-Pty Limited Australia

Carseldine Pty Limited Australia

Challenge Limited Australia

CBL Securities Limited (in liquidation) Australia

Challenge Finance Limited Australia

Trioba Pty Limited Australia

Challenge Funds Management Limited Australia

Challenge Information Technology Pty Limited Australia

Challenge Insurance Services (Agency) Pty Limited


Cold Storage Construction Pty Limited Australia

Westman Enterprises Pty Limited (in liquidation) Australia

Credit Caledonie et Tahitien (i) New Caledonia

Credit Foncier et Immobilier de la Nouvelle

Caledonie et de la Polynesie New Caledonia

Huben Holdings Pty Limited Australia

Hull 4381 and 4382 Leasing Pty Limited Australia

International Business Analysis Pty Limited


MFS Services Pty Limited (g) Australia

Maracorp Financial Services Pty Limited (g) Australia

Partnership Pacific Limited Australia

Country of

Name Notes Incorporation (b)

Country of


NOTE 33. GROUP ENTITIES

The consolidated financial statements at 30 September 1998 include the following controlled entities. The financial years of all controlled entitiesare the same as that of the Parent Entity.

124

Glenunga Pty Limited Australia

Maliny Pty Limited Australia

Operating Lease Trust No. 4 (i) Australia

Partnership Pacific Securities Limited Australia

Partnership Pacific (Vic.) Pty Limited


Wistow Pty Limited Australia

Pitco Pty Limited (d) Australia

The Pitco Trust (d) Australia

RESI – Statewide Corporation Limited (g) Australia

RESI – Statewide Mortgage Corporation Limited (g) Australia

S.A.L. Financial Services Pty Limited (g) Australia

RESI – Statewide Nominees Limited (g) Australia

Sallmoor Pty Limited (g) Australia

Sixty Martin Place (Holdings) Pty Limited Australia

Brooklyn Amber Pty Limited Australia

Claremont Bond Pty Limited Australia

Comserv (No 3011) Pty Limited Australia

Enfield Downs Pty Limited Australia

Faraday Arch Pty Limited Australia

Florida Banner Pty Limited Australia

Infrastructure (No 1) Limited Australia




Ivaness Pty Limited Australia

Loy Yang B Agencies Pty Limited Australia

Mayne Equipment Financing Pty Limited (h)(i) Australia

Oakjet Pty Limited Australia

Selbourne Pty Limited Australia

Teuton Pty Limited Australia

Westpac Administration Pty Limited

(formerly Baffsky Pty Limited) Australia

Westpac Asian Lending Pty Limited Australia

Westpac Debt Securities Pty Limited Australia

Westpac Equipment Finance Limited Australia

Westpac Equipment Finance (Vic) Pty Limited Australia

The Mortgage Company Pty Limited Australia

The Home Loan Partnership Pty Limited (h) Australia

Westpac Bank-PNG-Limited (i) Papua

New Guinea

Westpac Capital Corporation U.S.A.

Westpac Derivative Products Limited Australia

Westpac Employee Assistance Foundation Pty Limited Australia

Westpac Equity Holdings Pty Limited Australia

Westpac Development Capital Limited Australia

Westpac Financial Consultants Limited Australia

Westpac Financial Services Group Limited Australia

Westpac Financial Services Limited Australia

Westpac Managed Funds Limited


Westpac Insurance Services (Brokers) Limited Australia

Westpac Equity Pty Limited Australia

A.F.G. Insurance Limited Australia

Westpac General Insurance Limited Australia

Westpac Lenders Mortgage Insurance Limited Australia

Westpac Investment Management Pty Limited Australia

Westpac Life Insurance Services Limited Australia

Westpac Securities Administration Limited Australia

The Wales Nominees (Vic.) Pty Limited Australia

Westpac Custodian Nominees Limited Australia

Westpac Insurance Services

Superannuation Fund Ltd Australia

Westpac Nominees-Canberra-Pty Limited Australia

Westpac Nominees-SA-Pty Limited Australia

Westpac Information Technology Services Pty Limited Australia

Westpac Retirement Plan Pty Limited Australia

Westpac Securitisation Management Pty Limited (h) Australia

Westpac Training Services Pty Limited Australia

Westpac Finance Pty Limited Australia

Westpac Investment Holdings Pty Limited Australia

Westpac Leasing (UK) No.2 Limited Australia

Westpac Leasing Nominees Pty Limited Australia

Westpac Leasing Nominees-Vic.-Pty Limited Australia

Westpac Leasing Pty Limited Australia

Westpac OMG Holdings Pty Limited Australia

Westpac Overseas Holdings Pty Limited Australia

A.G.C. Finance (S.I.) Limited Solomon Islands

Diversified Investments LLC (h) Cayman Islands

Westpac Americas Inc. U.S.A.

Westpac Investment Capital Corporation U.S.A.

Westpac USA Inc. U.S.A.

Southern Cross Inc. U.S.A.

Westpac Banking Corporation (Jersey) Limited Jersey

Westpac Finance Asia Limited Hong Kong

Westpac Asia (Securities) Limited Hong Kong

Westpac Fund Managers (Jersey) Limited Jersey

Westpac Group Investment-NZ-Limited New Zealand

Westpac Holdings-NZ-Limited New Zealand

Australian Guarantee Corporation

(N.Z.) Limited New Zealand

A.G.C. Flexiloan Limited New Zealand

Central Number Two Limited New Zealand

Mortgage Services Limited New Zealand

Ngauranga Gorge Limited New Zealand

TBNZ Limited New Zealand

TBNZ Developments Limited (formerly

Westpac Developments Limited) New Zealand

TBNZ Investments Limited (formerly

Westpac Investments Limited) New Zealand

The Home Mortgage Company Limited New Zealand

Westpac Equity-NZ-Limited New Zealand

Aotearoa Financial Services Ltd (i) New Zealand

C.B.A. Finance Nominees Limited New Zealand

Piesse Properties Limited New Zealand

Sfaka Investments Limited New Zealand

NOTE 33. GROUP ENTITIES (CONTINUED)

Country of


Country of



125

NOTE 33. GROUP ENTITIES (CONTINUED)

Country of


Country of


Systems and Technology Limited

(formerly Trust Bank Systems

and Technology Limited) New Zealand

Westpac Communications-NZ-Limited New Zealand

Westpac Fund Acceptances-NZ-Limited New Zealand

Westpac Lease Discounting-NZ-Limited New Zealand

Toliman Investments Limited New Zealand

Westpac Finance Limited New Zealand

Westpac Trust Financial Services-NZ-Limited

(formerly Westpac Financial

Services-NZ-Limited) New Zealand

Westpac Nominees-NZ-Limited New Zealand

Westpac Group Investment Trust New Zealand

Westpac Trust Investment

Management-NZ-Limited (formerly

Westpac Investment Management-

NZ-Limited) New Zealand

Westpac Trust Life-NZ-Limited

(formerly Westpac Life-NZ-Limited) New Zealand

Westpac Trust Superannuation Nominees-

NZ-Limited (formerly Westpac

Superannuation Nominees-NZ-Limited) New Zealand

Westpac Trust Unit Investments-

NZ-Limited (formerly Westpac

Unit Investments-NZ-Limited) New Zealand

Westpac Trust Properties-NZ-Limited

(formerly Westpac Properties-

NZ-Limited) New Zealand

Westpac Singapore Limited Singapore

Westpac Overseas Funding Pty Limited Australia

Westpac Properties Limited Australia

Collins Wales Pty Limited Australia

Westpac Property Investments Pty Limited (e) Australia

Westpac Syndications Management Pty Limited Australia

Westpac Unit Trust Australia

Notes(a) Controlled entities shown in bold type are owned directly by the Parent Entity.(b) Overseas companies carry on business in the country of incorporation. For unincorporated entities, “Country of Incorporation” refers to the country where

business is carried on.(c) Westpac Banking Corporation carries on business in various countries throughout the world.(d) 50% of equity or issued units in Pitco Pty Limited, Biralo Pty Limited and The Pitco Trust is held directly by Westpac Property Investments Pty Limited.

The other 50% is held directly by the Parent Entity.(e) 50% of equity in Westpac Property Investments Pty Limited is held directly by Westpac Properties Limited. The other 50% is held directly by the

Parent Entity.(f) 50% of equity or issued units in Piccadilly of Sydney Pty Limited, Sarnia Pty Limited, Vicpac Chatswood Pty Limited is held directly by Australian Guarantee

Corporation Limited. The other 50% is held directly by the Parent Entity.(g) Bank of Melbourne Limited and its controlled entities were acquired on 7 November 1997 for $1,343 million and its results have been included from

1 October 1997. Assets and liabilities of Bank of Melbourne Limited were transferred to the Parent Entity on 3 May 1998.(h) Diversified Investments LLC was incorporated on 30 July 1998 with issued share capital of US$1 million. During the year Westpac Securitisation

Management Pty Limited, Mayne Equipment Financing Pty Limited and The Home Loan Partnership Pty Limited were incorporated with nominal share capital.(i) All entities listed in note 33 are wholly owned subsidiaries except the following:

Percentage Owned

1998 1997

Aotearoa Financial Services Limited 76.0% 76.0%

Bank of Kiribati Limited 51.0% 51.0%

Credit Caledonie et Tahitien 87.0% 87.0%

Mayne Equipment Financing Pty Limited (h) 95.0% –

Operating Lease Trust No. 4 99.0% 99.0%

Westpac Bank-PNG-Limited 89.9% 89.0%

Some entities were disposed of or liquidated during the year. These entities had no or nominal assets upon disposal/liquidation.

NOTE 34. OTHER GROUP INVESTMENTS

The Group has a significant non-controlling shareholding in the following entities:

Country Where Westpac Banking Business is Corporation Carried On Beneficial Interest Nature of Business

Abrotar Ltd Australia 47.0% Property investment

Austraclear Limited Australia 17.9% Clearing house for bill transactions

Autobail New Caledonia 47.9% Consumer credit

Bank of Tonga Tonga 30.0% Banking

Cardlink Services Limited Australia 16.0% Computer bureau & authorisation centre

Colobus Pty Limited Australia 50.0% Corporate trustee

Electronic Transaction Services Limited New Zealand 25.0% Credit card processing

Havenmaze Ltd Australia 47.0% Property owner

Krava Nominees Pty Ltd Australia 50.0% Corporate trustee

Lawrence Collateral Indemnity Pty Ltd Australia 50.0% Corporate trustee

MLM (Properties) Ltd Australia 47.0% Property owner

Mondex Australia Pty Ltd Australia 25.0% Smart card operations

Mondex New Zealand Limited New Zealand 16.7% Smart card operations

Pacific Commercial Bank Limited Western Samoa 42.7% Banking

Runaway Bay Unit Trust Australia 25.0% Property development

Siap Renting New Caledonia 47.9% Consumer credit

Societe Caledonienne de Monetique et de Services Bancaires New Caledonia 20.0% Banking

Somersby Park Pty Ltd Australia 25.0% Property owner

The Conchi Leasing Limited Partnership Hong Kong 50.0% Aircraft leasing

Westpac Staff Superannuation Plan Pty Ltd Australia 50.0% Corporate trustee

In terms of the amount of the Group’s interest and their contribution to the results of the Group, the above investments are not material eitherindividually or in aggregate.

NOTE 35. RETIREMENT BENEFITS

The aggregate amount of “prescribed benefits” (as defined by Section 237 of the Corporations Law) given by the Group and the Parent Entity or its controlled entities was:


1998 1997 1998 1997$’000 $’000 $’000 $’000

Aggregate amount of prescribed benefits 1,137 947 293 295

The benefits not pertaining to the Parent Entity were entitlements paid to former Directors of Bank of Melbourne Limited and an employee of theGroup who, upon leaving service was a Director of a controlled entity. The entitlement accrued to that person in his capacity as an employee andwas not related in any way to his directorship. In the circumstances, the Directors consider that it would be unreasonable to provide fullparticulars of those benefits.

NOTE 36. DIRECTORS

Directors of the Parent Entity during the year ended 30 September 1998 were:

Mr J.A. Uhrig (Chairman) Mr R.L. Joss (Managing Director)

Mr R.P. Handley (Executive Director – appointed 12 November 1997) Dr D.R. Morgan (Executive Director – appointed 12 November 1997)

Mr W.B. Capp Ms H.A. Lynch (appointed 12 November 1997)

The Hon. Sir Llewellyn Edwards Ms E. Mahlab

Mr J.B. Fair fax Mr P.D. Ritchie

Mr I.R.L. Harper Mr C.J. Stewart (appointed 12 November 1997)

Professor W.P. Hogan Mr J.P. Morschel (resigned as an Executive Director and appointed

a non-executive Director on 12 November 1997)

126

NOTE 37. LOANS TO DIRECTORS AND DIRECTOR-RELATED PARTIES

Loans made to Directors of the Parent Entity and controlled entities and to parties related to them are made in the ordinary course of businesson normal terms and conditions. In respect of loans to Executive Directors, loans are made on the same terms and conditions as apply to otheremployees of the Group in accordance with established policy. Directors’ loans for the year ended 30 September 1998 include director-relatedentities’ loans. Comparative figures for the year ended 30 September 1997 have been adjusted accordingly.


1998 1997 1998 1997$’000 $’000 $’000 $’000

Aggregate amount of loans to Directors 197,988 100,901 197,662 100,521

Loans advanced during the year 96,187 482 95,875 410

Loan repayments received during the year 5,772 34 5,618 –

The Directors of the Parent Entity and other controlled entities concerned in the relevant loans made and repayments received during 1998 and1997 were:

1998 1997 1998 1997

N.J. Bayliss 5 4 J.J. Moses 2,4 2,4

W.B. Capp 1,3 1,3 J.B. Sinclair 1,2,4 –

Sir L. Edwards 1,3 – J.A. Uhrig 1,2,3 –

J.B. Fair fax 1,3 1,3 D. Weston 5 1,2,4

I.R.L. Harper 1,2,3 1,3 Y. Wong 1,2,4 –

H.A. Lynch 1,2,3 – R.J. Zubielevitch 1,2,4 1,2,4

1 Loan advanced during the year. 4 Employee terms and conditions apply.2 Repayment made by this person during the year. 5 Ceased to be a Director during the year.3 Ordinary course of business and normal terms and conditions apply,

including fluctuating overdraft facilities.

NOTE 38. DIRECTORS’ SHARES AND SHARE OPTION TRANSACTIONS

Details of share options issued to the Managing Director Mr R.L. Joss and Executive Directors Mr R.P. Handley and Dr D.R. Morgan are set outin note 21.

1998 1997

(i) Ordinary shares issued during the yearThe aggregate number of shares issued by the Parent Entity to the Directors of the Parent Entity and their Director-related entities during the year ended 30 September were: 351,308 1 1,666,667 3

(ii) Ordinary shares disposed of during the year 417,500 Nil

(iii)Shares held at the end of the yearThe aggregate number of shares of the Parent Entity held directly, indirectly or beneficially by Directors of the Parent Entity and their Director-related entities at 30 September were: 2,773,5232 2,613,918 4

1 Includes 350,000 issued under the Westpac Senior Officers’ Share Purchase Scheme and 1,308 issued under the Dividend Reinvestment Plan.2 Includes 285,017 owned by staff-related benefit fund of which Directors are trustees.3 Issued under the Chief Executive Share Option Agreement.4 Includes 671,527 owned by staff-related benefit fund of which Directors are trustees.


127

NOTE 39. DIRECTORS’ REMUNERATION

Income received, or due and receivable, from the Parent Entity and related entities by Directors of the Parent Entity fell within the bands below:

1998 1997 1998 1997

$20,001 – 30,000 – 1 250,001 – 260,000 – 1

50,001 – 60,000 – 1 260,001 – 270,000 1 –

60,001 – 70,000 6 4 980,001 – 990,000 – 1

70,001 – 80,000 1 1 1,160,001 – 1,170,000 1 –

80,001 – 90,000 2 1 1,480,001 – 1,490,000 1 –

170,001 – 180,000 1 – 2,140,001 – 2,150,000 – 1

2,670,001 – 2,680,000 1 –

Total 14 11

Directors of Directors of thethe Group Parent Entity

1998 1997 1998 1997$’000 $’000 $’000 $’000

Income received, or due and receivable, from the Parent Entity and related entities by Directors. 8,024 5,452 6,400 3,900

In accordance with Australian Accounting Standard AASB 1017 “Related Party Disclosures”, Directors’ remuneration has been determined on thebasis of the cost of the remuneration to the Group. Where non-monetary benefits are provided to a Director, the amount of remuneration includesthe total cost to the Group of providing the benefits, including fringe benefits tax. Additional information for Executive Directors is contained in theexecutive team compensation summary shown in note 41.

NOTE 40. RELATED PARTY DISCLOSURES

Controlled Entities

Transactions between the Parent Entity and its controlled entities during the year have included the provision of a wide range of banking and otherfinancial facilities, some of which have been on commercial terms and conditions, others have been on terms and conditions which represented aconcession to the controlled entities. Details of amounts paid to or received from related parties, in the form of dividends or interest, are set outin notes 2 and 3. Other intra-Group transactions, which may or may not be on commercial terms, include the provision of management andadministration services, staff training, data processing facilities and leasing of properties, plant and equipment.

Similar transactions between Group entities and other related parties have been almost invariably on commercial terms and conditions as agreedbetween the parties. Such transactions are not considered to be material, either individually or in aggregate.

Related party financial instrument transactions

The Parent Entity and controlled entities have been exempted under the ASIC Class Order 98/0110 dated 10 July 1998 from the requirement todisclose in the financial statements regular financial instrument transactions made by the bank with related parties (other than directors), in theordinary course of banking business and either on an arms length basis or with the approval of the shareholders of the relevant entity and itsultimate parent entity.

A condition of the Class Order is that the Parent Entity must lodge a statutory declaration, signed by two Directors, with ASIC confirming that theParent Entity has appropriate systems of internal controls and procedures in place.

The Directors of the Parent Entity are of the opinion that there were no financial instrument transactions with Directors or related parties duringthe year ended 30 September 1998 which are required to be disclosed.

Directors’ interests in contracts

As required by the Company Law Review Act 1998, some Directors have given notice that they hold office in specified companies and as such areto be regarded as having an interest in any contract or proposed contract which may be made between Parent Entity and those companies.

All other transactions with Directors, director-related entities and other related parties are conducted on an arm’s length basis in the normal courseof business and on commercial terms and conditions. These transactions principally involve the provision of financial and investment services.

128

NOTE 41. EXECUTIVES’ REMUNERATION

The following table shows the number of executives of the Parent Entity and Group in Australia whose income received, or due and receivable,from the Parent Entity and related entities fell within the stated bands. In accordance with the requirements of accounting standard AASB 1034“Information to be disclosed in Financial Reports”, remuneration includes any money, consideration or benefit, but does not include fringe benefitstax, other than for those individuals whose remuneration is calculated on a “total employment cost” basis.

1 Includes payments (other than those included in note 35) to one or more executives in this remuneration band who retired/resigned during the year.2 Includes payments to one or more executives in this remuneration band who commenced employment with Westpac during the year.


1998 1997 1998 1997$’000 $’000 $’000 $’000

Total income received, or due and receivable, from the Parent Entity and related entities by Executive Officers whose income exceeded $100,000 25,521 23,152 25,521 22,245

The above table discloses data in respect of only those officers who are responsible for the strategic direction and operational management(“Executive Officers”) of the Parent Entity and related entities. No value has been ascribed to any options issued to any of those officers.

There are also 63 (1997 74) other employees whose remuneration individually exceeds $100,000 per annum who are not Executive Officersbut who, in the discharge of their duties in Australia as employees of the Parent Entity, serve as Directors of wholly-owned Australian controlledentities. Total income received, or due and receivable, by these employees amounted to $14,493,000 (1997 $15,786,000).


1998 1997 1998 1997

$60,001 – 70,000 11 – 11 –

110,001 – 120,000 12 – 12 –

180,001 – 190,000 11 – 11 –

190,001 – 200,000 11 – 11 –

220,001 – 230,000 11 – 11 –

250,001 – 260,000 2 1 2 1

270,001 – 280,000 – 1 – 1

290,001 – 300,000 2 1 2 1

300,001 – 310,000 – 1 – 1

310,001 – 320,000 – 11 – 11

320,001 – 330,000 – 1 – 1

330,001 – 340,000 – 1 – 1

340,001 – 350,000 1 – 1 –

360,001 – 370,000 2 – 2 –

380,001 – 390,000 1 2 1 2

390,001 – 400,000 1 – 1 –

400,001 – 410,000 1 2 1 2

410,001 – 420,000 – 1 – 1

420,001 – 430,000 – 1 – –

430,001 – 440,000 3 – 3 –

440,001 – 450,000 1 1 1 1

450,001 – 460,000 – 2 – 2

460,001 – 470,000 – 1 – 1

470,001 – 480,000 1 3 1 3

480,001 – 490,000 1 1 1 –

490,001 – 500,000 – 1 – 1

500,001 – 510,000 – 1 – 1


1998 1997 1998 1997

510,001 – 520,000 2 – 2 –

550,001 – 560,000 1 – 1 –

570,001 – 580,000 1 – 1 –

580,001 – 590,000 – 2 – 2

600,001 – 610,000 – 1 – 1

620,001 – 630,000 – 1 – 1

670,001 – 680,000 2 11 2 11

690,001 – 700,000 1 1 1 1

710,001 – 720,000 – 1 – 1

720,001 – 730,000 – 1 – 1

760,001 – 770,000 1 – 1 –

780,001 – 790,000 – 1 – 1

810,001 – 820,000 11 – 11 –

820,001 – 830,000 1 1 1 1

840,001 – 850,000 – 1 – 1

850,001 – 860,000 1 – 1 –

870,001 – 880,000 1 – 1 –

890,001 – 900,000 – 1 – 1

900,001 – 910,000 1 – 1 –

980,001 – 990,000 – 2 – 2

1,150,001 –1,160,000 1 – 1 –

1,170,001 –1,180,000 1 – 1 –

1,320,001 –1,330,000 11 – 11 –

1,360,001 –1,370,000 1 – 1 –

1,440,001 –1,450,000 – 1 – 1

1,920,001 –1,930,000 – 1 – 1

2,080,001 –2,090,000 1 – 1 –

2,400,001 –2,410,000 1 – 1 –

Total 40 39 40 37


129

NOTE 42. STATEMENTS OF CASH FLOWS


1998 1997 1996 1998 1997$m $m $m $m $m

Reconciliation of net cash provided by operating activities to operating profit after income tax

Operating profit after income tax 1,272 1,291 1,132 1,276 1,470

Adjustments:

Outside equity interests 4 2 3 – –

Depreciation 244 218 174 206 185

Sundry provisions and other non cash items (466) (808) 318 (670) (846)

Bad and doubtful debts 257 171 206 122 81

(Increase)/decrease in trading securities 484 (722) 1,857 (274) (766)

(Increase)/decrease in accrued interest receivable 11 34 (15) (3) (12)

Increase/(decrease) in accrued interest payable 243 66 83 248 59

Increase/(decrease) in provision for income tax 57 (218) 331 146 (311)

Increase/(decrease) in provision for deferred income tax (113) (409) (90) 61 (405)

(Increase)/decrease in future income tax benefits 106 521 32 (25) 505

Amounts paid out of sundry provisions (111) (141) (149) (90) (125)

Total adjustments 716 (1,286) 2,750 (279) (1,635)

Net cash provided by/(used in) operating activities 1,988 5 3,882 997 (165)

Non cash operating, investing and financing activities

Entities and businesses acquiredDetails of assets and liabilities of controlled entities and businesses acquired are as follows:

Due from the Westpac Group – – 151 35 –

Due from other financial institutions 47 – 40 120 –

Trading securities 707 – 1,769 – –

Investment securities 652 – 247 – –

Regulatory deposits 109 – 50 104 –

Loans 9,972 – 11,491 10,238 –

Acceptances of customers – – 133 – –

Other investments – 346 7 5 –

Fixed assets 49 – 128 63 –

Other assets 60 – 193 588 –

Deposits and public borrowings (8,904) – (11,069) (6,567) –

Bonds, notes and commercial paper (1,885) – (1,931) (875) –

Acceptances of customers – – (133) – –

Loan capital – – (72) – –

Due to other financial institutions (10) – (42) – –

Due to the Westpac Group – – (108) (2,893) –

Other liabilities (329) – (230) (350) –

468 346 624 468 –

Integration costs provided, net of tax benefit (63) – (56) (63) –

Fair value of net assets acquired 405 346 568 405 –

Intangible assets 1 (note 16) 913 – 1,145 913 –

1,318 346 1,713 1,318 –

Issuance of shares as part consideration 1 (1,169) – (399) (1,169) –

Prior period cash payment for investment – – (41) – –

Current period cash payment for acquisition (net of cash acquired) 149 346 1,273 149 –

Cash acquired 25 – 87 25 –

Cash consideration and costs 174 346 1,360 174 –

1 For details, see notes on the following page.

130

NOTE 42. STATEMENTS OF CASH FLOWS (CONTINUED)

Acquisitions

On acquisition of BML a provision for integration costs of $63 million, net of tax benefits, was included in the determination of intangibleassets. This provision consisted of the costs of integrating the BML operations, including branch rationalisation, computer system integrationand staff redundancies. The costs associated with restructuring the Westpac operations as a consequence of the BML acquisition wereexpensed as incurred.

Issuance of 142 million $1 ordinary shares fully paid at a premium of $7.23 each as part consideration for acquisition of BML amounted to$1,169 million. (1996 Challenge Bank and Trust Bank New Zealand, issuance of 70.4 million and 2.6 million, respectively, $1 ordinary sharesfully paid up at premiums of $4.45 and $4.93 each, respectively, amounted to $399 million.)

Equity transactions

Shares issued under the Dividend Reinvestment Plan amounted to $91 million in the year ended 30 September 1998 (1997 nil). All 80,000,000$1 converting preference shares were converted into 80,000,000 $1 ordinary shares by 30 June 1998 with no cash consideration.

Cash and cash equivalents

Cash and cash equivalents comprise cash and balances with central banks as shown in the balance sheet.

Formal commercial standby facilities have not been obtained as the Group has liquidity controls limiting the extent of cash flow mismatch andhas access to central bank facilities in certain locations in the event that market difficulties arise.

The statements of cashflows comply with International Accounting Standard No. 7.

NOTE 43. RECONCILIATION WITH US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)

The consolidated financial statements of the Group are prepared in accordance with accounting principles and policies as summarised in note 1.These principles and policies differ in some respects from generally accepted accounting principles applicable in the United States (US GAAP).

The following are reconciliations of the consolidated financial statements, for any significant adjustments, to comply with US GAAP:

1998 1997 1996$m $m $m

Profit and loss statement

Net profit as reported 1,272 1,291 1,132

Adjustments: (see following commentary for details)

Item No.

1 Depreciation on buildings 8 10 7

2 Gains on sale of properties (including amortisation of gains on sale of properties subject to leaseback arrangements) (11) 52 25

3 Amortisation of goodwill (15) (15) (16)

4 Superannuation (pension) expense adjustment 8 58 80

Related income tax expense (2) (21) (32)

6 Adjustment re provision for employee redundancy benefits 51 – (98)

Related income tax expense (18) – 35

7 Life insurance adjustment (net of tax) 8 (12) –

Adjusted net income according to US GAAP 1,301 1,363 1,133

Adjusted net income per share

Primary and fully diluted – in cents 68.0 74.0 59.0

Weighted average number of shares (in millions) 1,879.0 1,788.6 1,853.1

Non-interest expenses as reported 3,392 3,228 3,049


Item No.

1 Depreciation on buildings (8) (10) (7)

3 Amortisation of goodwill 15 15 16

4 Superannuation (benefit)/expense (65) (42) (69)

4 Superannuation prepayment adjustment 57 (16) (11)

6 Adjustment re provision for employee redundancy benefits (51) – 98

10 Abnormal items 106 – –

Non-interest expenses according to US GAAP 3,446 3,175 3,076


131

NOTE 43. RECONCILIATION WITH US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (CONTINUED)

1998 1997 1996$m $m $m

Shareholders’ equity as reported 8,606 8,200 7,885


Item No.

1 Elimination of asset revaluation reserves (144) (202) (260)

1 Depreciation on buildings 48 40 30

2 Deferred gains on sale of properties subject to leaseback arrangements (76) (40) (64)

3 Goodwill not recognised on acquisitions (less amortisation) 40 55 70

3 Restoration of previously deducted goodwill (less amortisation and amounts written-off) 5 5 5

4 Superannuation (pension) expense adjustment (97) (103) (140)

6 Adjustment re provision for employee redundancy benefits 33 – 3

7 Life insurance adjustment (net of tax) 4 (12) –

8 Investment securities fair value adjustment (including life company investment) 3 (1) (19)

9 Final dividend provided 418 354 307

Adjusted equity according to US GAAP 8,840 8,296 7,817

The following is a summary of the significant adjustments made to consolidated net profit and shareholders’ equity to reconcile the AustralianGAAP results with US GAAP.

1 Premises and sites and certain equity investments have been revalued and the amount of such revaluation is included in the Group’s reserves.Depreciation of buildings is based on revalued amounts. Under US GAAP, such revaluations are not permitted and depreciation is based onhistorical cost.

2 Where properties and equity investments are sold, the Group’s policy of periodically revaluing such assets results in only the differencebetween net sale proceeds and the revalued amount of the assets sold being recorded in the profit and loss statement. Under US GAAP,the profit on sale of such assets to be reflected in the profit and loss statement (income statement) is calculated by reference to cost(less depreciation in respect of properties). Also under US GAAP, where properties are sold with a leaseback arrangement, the profit onsale is spread over the term of the initial lease.

3 Contrary to US GAAP, Westpac did not assign market values to the shares it issued in respect of certain acquisitions prior to 1982.The adjusted profit and loss statement and adjusted shareholders’ equity statement reflect the assignment of market values to the sharesissued by Westpac and the goodwill which emerges as a consequence.

Up until 1987, goodwill arising in connection with the acquisition of entities was written off as an extraordinary item in the year the acquisitiontook place. US GAAP requires goodwill to be amortised on the basis of its estimated life but not exceeding 25 years for financial institutions.For the purposes of the US GAAP reconciliation, a write-off period of 20 years has been assumed.

Since 1987, the Group’s accounting policies have complied with Australian accounting standards in relation to goodwill which are similarto US GAAP except that the maximum amortisation period is restricted to 20 years.

4 Surpluses in the Group’s principal pension plans for employees have been recognised as assets of the Group.

Under US GAAP, such surpluses are not recognised immediately as assets. SFAS No. 87 “Employers’ Accounting for Pensions” requires,upon its initial application, such previously unrecognised surpluses to be amortised to income, as an adjustment to pension expense, on a straight-line basis over the average remaining service period of members of the plans. If this period is less than 15 years, a 15 yearamortisation period may be adopted.

5 Future income tax benefits have been recognised where realisation of the benefits through future income is vir tually certain. US GAAP(SFAS No. 109 “Accounting for Income Taxes”) is not materially different from Australian GAAP except that in relation to the criteria forrecognition of future income tax benefits, Australian GAAP requires a “vir tual certainty” test, while SFAS No. 109 adopts a lower level ofprobability, namely a “more likely than not” threshold. Application of SFAS No. 109 does not materially impact Westpac and no adjustmentis required to either shareholders’ equity or to net profit.

At 30 September, net deferred tax assets under US GAAP comprise:

1998 1997$m $m

Total deferred tax assets 886 957

Total valuation allowances recognised for deferred tax assets 1 (161) (126)

Deferred tax assets (future income tax benefits as per note 16) 725 831

Total deferred tax liabilities (note 19) (256) (369)

Net deferred tax assets 469 462

Net (decrease)/increase in the total valuation allowance during the year (35) 26

1 This item comprises potential future tax benefits not brought to account under Australian GAAP because realisation is uncertain. See footnote to note 16.

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6 The provision for restructuring costs as at 30 September 1998 of $106 million (refer note 5) includes staff redundancy costs of $51 million anda liability for premises costs of $55 million. The provision for restructuring principally covers the costs of the redevelopment of the distributionnetwork in Australia and New Zealand and rationalisation of Westpac’s operations in Asia. US GAAP requires that the plan of terminationspecifically identifies the number of employees to be terminated, their job classifications or functions, their locations and communication of thebenefits to the affected employees. The staff redundancy provisions have not been recognised as a US GAAP expense as the communicationwas not completed in the financial year.

7 For Australian GAAP the assets of the statutory funds of Westpac Life and the liabilities of the funds to the policy holders are excludedfrom the consolidated balance sheet. Under US GAAP, the amount of these funds and the related liabilities are included in consolidatedassets and liabilities of the Group. The amount of the statutory funds and their related liabilities at 30 September 1998 is $6,405 million(1997 $5,353 million) which includes the shareholders’ interest in these funds of $331 million (1997 $249 million). This amount forms partof the Group’s investment in the life company. All related investments in the funds are reflected at market value.

Under Australian GAAP, in accordance with the applicable Insurance Commissioner’s rules, both fixed and variable acquisition costs canbe deferred and recognised over the estimated life of the policy. US GAAP limits the deferral of acquisition costs to direct variable costs.Additionally, under Australian GAAP, investments included in shareholders’ funds are reflected at market value with the corresponding gainor loss recognised in income under the applicable Insurance Commissioner’s rules. In accordance with US GAAP, these investments wouldbe classified as available for sale and the unrealised gain or loss reflected as a separate component of shareholders’ equity.

8 Subject to the constraints of prudential and regulatory requirements, Westpac’s investment securities are generally available-for-salesecurities as defined by US GAAP (SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities”). Such securities havebeen reported at cost, adjusted for premium or discount amortisation. SFAS No. 115 requires that such securities be reported at fair value,with unrealised gains and losses, net of tax effects, excluded from earnings and reported as a separate component of equity.

9 Dividends proposed after the end of each financial year are recorded in the period to which they relate. Under US GAAP, dividends are recordedin the period in which they are declared.

10 In accordance with Australian GAAP, abnormal items (defined as items of revenue and expense included in operating profit or loss, whichare considered abnormal by reason of their size and effect on the results for the financial period) are disclosed separately (note 5) and areincluded in the profit and loss statement. While such abnormal items do not meet the criteria for extraordinary treatment pursuant to US GAAP,there is no effect on net income or shareholders’ equity.

11 Westpac has not attributed any cost to options granted to senior officers under the Senior Officers’ Share Purchase Scheme (see note 21)in either its profit and loss statement prepared in accordance with Australian GAAP or in the statement reconciled to US GAAP. Had Westpacadopted the requirements of US accounting standard SFAS No. 123, “Accounting for Stock-Based Compensation”, net income according toUS GAAP in the year ended 30 September 1998, would have reduced by $13 million or 0.7 cents per share. (1997 $7 million or 0.4 cents pershare; 1996 $3 million or 0.2 cents per share). The options have been calculated using the dividend adjusted Black & Scholes pricing modelassuming an average life of 4 years and 19% volatility.

12 In accordance with US accounting standard SFAS 114 “Accounting by Creditors for Impairment of a Loan” the measurement of impairedloans is to be based on the present value of expected future cash flows discounted at the loan’s effective interest rate; or based on a loan’sobservable market price; or on the fair value of the collateral if the loan is collateral dependent, that is, repayment of the loan is expectedto be provided solely by the underlying collateral.

A significant portion of Westpac’s portfolio of impaired loans is collateral dependent and the net carrying value, after deducting specificprovisions, is based on the estimated market value of the collateral. Moreover, to the extent that the carrying value of non-collateral dependentimpaired loans, after deduction of specific provisions, may exceed the present value of expected future cash flows relating to such loans,adequate provision has been made for the shortfall within the general provision for doubtful debts. Accordingly, application of SFAS No. 114does not give rise to a US GAAP reconciliation adjustment.


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Consolidated statement of changes in US GAAP shareholders’ equity

1998 1997 1996$m $m $m

Balance at beginning of year 8,296 7,817 7,438

(Decrease)/increase in share capital 38 (26) (18)

Premium on shares issued 1,179 21 336

Premium on shares bought back (1,174) (216) (450)

Currency translation adjustments (net of hedging gains/losses) (15) 3 (3)

Net income 1,301 1,363 1,133

Dividends provided for or paid (853) (731) (653)

US GAAP adjustments for:

Final dividend proposed 418 354 307

Final dividend for prior year (354) (307) (274)

Investment securities fair value adjustment (including life company investment) 4 18 1

Balance at year end 8,840 8,296 7,817

Superannuation (pension) expenseFor the purpose of calculating net income in accordance with US GAAP, the Group has adopted SFAS No. 87 in respect of the Group’s twoprincipal pension plans for employees of the Parent Entity and AGC in Australia. Other pension plans operated by the Group are not material.

In accordance with SFAS No. 87, the amount by which assets of the pension plans exceeded the actuarial present value of projected benefitobligations is being applied as a reduction of net pension cost over fifteen years.

The reconciliation of net income calculated in accordance with Australian GAAP to net income calculated in accordance with US GAAP for the yearsended 30 September 1998, 1997 and 1996 includes superannuation (pension) expense adjustments after tax of $6 million (credit), $37 million(credit) and $48 million (credit) respectively.

1998 1997 1996$m $m $m

These adjustments comprise:

Elimination of superannuation expense/(benefit) for Australian accounting purposes (57) 16 11

Income tax applicable 21 (6) (4)

(36) 10 7

Recognition of a pension benefit calculated in accordance with US GAAP 65 42 69

Income tax applicable (23) (15) (25)

42 27 44

Adjustment to reflect change in the Australian company income tax rate – – (3)

Net adjustment 6 37 48

The pension benefit calculated in accordance with SFAS No.87 comprises:

Service cost (97) (102) (90)

Interest cost (106) (126) (133)

Return on assets 294 483 242

Net amortisation and deferral (56) (235) 30

Net periodic pension benefit 35 20 49

Employee contributions 30 22 20

Net Group periodic pension benefit 65 42 69

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1998 1997 1996$m $m $m

The following table presents the estimated status of the Group’s two principal pension plans at 30 September:

Accumulated benefit obligation:

Vested 1,510 1,438 1,406

Non-vested 48 62 10

Total accumulated benefit obligation 1,558 1,500 1,416

Projected benefit obligation 1,723 1,600 1,541

Market value of plan assets 1 2,526 2,387 2,246

Plan assets in excess of projected benefit obligation 803 787 705

Amounts not yet recognised:

Balance of transitional asset 574 669 765

Prior service cost (61) (86) (112)

Net loss (315) (336) (446)

Total amounts not yet recognised 198 247 207

Prepaid pension contributions at 30 September for the purposes of US GAAP 605 540 498

Reconciliation of prepaid pension contributions:

Prepaid pension contributions at beginning of year 540 498 429

Pension benefit for the year 65 42 69

Prepaid pension contributions 605 540 498

1 Plan assets are invested primarily in fixed-interest securities, listed Australian and overseas stocks and real estate.Included in the plan assets at 30 September 1998 are deposits with Westpac Banking Corporation totalling $15 million (1997 $15 million) and 5.2 million(1997 4.1 million) Westpac Banking Corporation ordinary shares having a total market value at that date of $48 million (1997 $36 million).

Assumptions used in determining the projected benefit obligation at 30 September 1998, 1997 and 1996 and in determining the pension benefitfor the year ended on those dates included the following:

1998 1997 1996

Pension benefitAssumed rate of return on plan assets 8.0% 8.5% 9.0%

Projected benefit obligationAverage increase in future compensation levels 1 4.0% 4.5% 5.0%

Discount rate 5.5% 6.5% 8.0%

1 plus promotional scales equivalent to approximately 1.5%

The Group has no material obligations in respect of post-retirement employee benefits other than pensions.

Proforma consolidation informationThe following table presents the proforma financial data in respect of the acquisition of Bank of Melbourne Limited assuming the acquisition hadoccurred on 1 October 1996.

Proforma As reported consolidated

Australian US Australian USYear ended 30 September 1997 GAAP GAAP GAAP GAAP

Operating profit after income tax ($millions) 1,291 1,363 1,322 1,394

Earnings per share (cents) 70.0 74.0 67.0 70.7

Recent Accounting PronouncementsThere are a number of recently released United States accounting pronouncements which are not applicable to the financial year ended30 September 1998. The requirements of SFAS No. 130 “Reporting Comprehensive Income”, SFAS No. 131 “Disclosures About Segments of anEnterprise and Related Information”, SFAS No. 132 “Employers’ Disclosures about Pensions and Other Post-retirement Benefits” have not beenapplied prior to their application date. The Group does not believe that these accounting pronouncements will have a material effect on theGroup’s financial position and results. In addition, the Group has not applied the requirements of SFAS No. 133 “Accounting for DerivativeInstruments and Hedging Activities”, which applies to financial years beginning after 15 June 1999, and is yet to determine its impact on theGroup’s financial position and results.


135

DIRECTORS’ DECLARATION

In accordance with a resolution of the Directors of Westpac Banking Corporation (“the Parent Entity”), the Directors declare that:

(a) the financial statements of the Parent Entity and consolidated financial statements of Westpac Banking Corporation (“the Group”) are drawn up:

(i) so as to give a true and fair view of the per formance of the Parent Entity and Group for the year ended 30 September 1998 and thefinancial position of the Parent Entity and Group as at 30 September 1998;

(ii) in accordance with applicable Accounting Standards and other mandatory professional reporting requirements; and

(iii) in accordance with the Corporations Law;

(b) at the date of this declaration there are reasonable grounds to believe that the Parent Entity will be able to pay its debts as and when theybecome due and payable.

Dated at Sydney this 11th day of November 1998.

For and on behalf of the Board.

J.A. Uhrig R.L. JossChairman Managing Director

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INDEPENDENT AUDIT REPORT TO THE SHAREHOLDERS OF WESTPAC BANKING CORPORATION

ScopeWe have audited the financial report of Westpac Banking Corporation (“the Parent Entity”) and the consolidated financial report of Westpac BankingCorporation Group (“the Group”) for the year ended 30 September 1998, consisting of the balance sheets, statements of profit and loss, changesin shareholders’ equity and cash flows and the accompanying notes to the financial statements as set out on pages 86 to 136. The Parent Entity’sDirectors are responsible for the preparation and presentation of the financial report and the information they contain. We have conducted anindependent audit of these financial reports in order to express an opinion on them to the shareholders of the Parent Entity.

Our audit has been conducted in accordance with Australian Auditing Standards (which are substantially the same as auditing standards generallyaccepted in the United States of America) to provide reasonable assurance as to whether the financial report is free of material misstatement.Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and theevaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether,in all material respects, the financial report is presented fairly by the Directors in accordance with applicable Accounting Standards, other mandatoryprofessional reporting requirements and are in accordance with the provisions of, and provide the information required by, the Deed of Settlementand the Bank of New South Wales Act of 1850 (as amended) and other statutory requirements in a manner authorised for a banking corporationunder the Banking Act, 1959 (as amended) so as to present a view which is consistent with our understanding of the Parent Entity’s and of theGroup’s financial position, the results of their operations and their cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit OpinionIn our opinion, the financial reports of the Parent Entity and the Group is in accordance with:

a) the Corporations Law, including:

(i) giving a true and fair view of the Parent Entity’s and the Group’s state of affairs as at 30 September 1998 and 1997 and of the ParentEntity’s results of operations and its cash flows for each of the two years ended 30 September 1998 and the Group’s results of operationsand its cash flows for each of the three years ended 30 September 1998; and

(ii) complying with Accounting Standards and the Corporations Regulations;

b) the provisions of and provide the information required by, the Deed of Settlement, the Bank of New South Wales Act of 1850 (as amended)and the Corporations Law in the manner authorised for a banking corporation under the Banking Act, 1959 (as amended); and

c) other mandatory professional reporting requirements.

We have obtained all the information and explanations we have required.

Generally accepted accounting principles in Australia vary in certain respects from generally accepted accounting principles in the United States.An explanation of the major differences between the two sets of principles is presented in note 43 to the financial statements. The applicationof the United States principles would have affected the determination of consolidated net income for each of the three years in the years ended30 September 1998 and the determination of consolidated shareholders’ equity at 30 September 1998, 1997 and 1996 to the extentsummarised in note 43 to the financial statements.

R.S. Lynn R. Chowdry

Chartered AccountantsSydney, Australia11 November 1998

Statutory statements

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financial statements - westpac

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